Correlation Between TomCo Energy and Barloworld

Can any of the company-specific risk be diversified away by investing in both TomCo Energy and Barloworld at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining TomCo Energy and Barloworld into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between TomCo Energy Plc and Barloworld Ltd ADR, you can compare the effects of market volatilities on TomCo Energy and Barloworld and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in TomCo Energy with a short position of Barloworld. Check out your portfolio center. Please also check ongoing floating volatility patterns of TomCo Energy and Barloworld.

Diversification Opportunities for TomCo Energy and Barloworld

0.82

Correlation Coefficient

TomCo Energy  Barloworld

Very poor diversification

The 3 months correlation between TomCo and Barloworld is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding TomCo Energy Plc and Barloworld Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barloworld ADR and TomCo Energy is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on TomCo Energy Plc are associated (or correlated) with Barloworld. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Barloworld ADR has no effect on the direction of TomCo Energy i.e., TomCo Energy and Barloworld go up and down completely randomly.

Pair Corralation between TomCo Energy and Barloworld

Assuming the 90 days horizon TomCo Energy Plc is expected to generate 22.08 times more return on investment than Barloworld. However, TomCo Energy is 22.08 times more volatile than Barloworld Ltd ADR. It trades about 0.11 of its potential returns per unit of risk. Barloworld Ltd ADR is currently generating about -0.01 per unit of risk. If you would invest  0.16  in TomCo Energy Plc on January 24, 2024 and sell it today you would earn a total of  1.37  from holding TomCo Energy Plc or generate 856.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

TomCo Energy Plc  vs.  Barloworld Ltd ADR

TomCo Energy Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TomCo Energy Plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, TomCo Energy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Barloworld ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Barloworld Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with TomCo Energy and Barloworld

The main advantage of trading using opposite TomCo Energy and Barloworld positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TomCo Energy position performs unexpectedly, Barloworld can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Barloworld will offset losses from the drop in Barloworld's long position.

The idea behind TomCo Energy Plc and Barloworld Ltd ADR pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.