Correlation Between Barloworld and Armada Mercantile

Can any of the company-specific risk be diversified away by investing in both Barloworld and Armada Mercantile 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 Barloworld and Armada Mercantile into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Barloworld Ltd ADR and Armada Mercantile, you can compare the effects of market volatilities on Barloworld and Armada Mercantile 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 Barloworld with a short position of Armada Mercantile. Check out your portfolio center. Please also check ongoing floating volatility patterns of Barloworld and Armada Mercantile.

Diversification Opportunities for Barloworld and Armada Mercantile

0.04

Correlation Coefficient

Barloworld  Armada Mercantile

Significant diversification

The 3 months correlation between Barloworld and Armada is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and Armada Mercantile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Armada Mercantile and Barloworld 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 Barloworld Ltd ADR are associated (or correlated) with Armada Mercantile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Armada Mercantile has no effect on the direction of Barloworld i.e., Barloworld and Armada Mercantile go up and down completely randomly.

Pair Corralation between Barloworld and Armada Mercantile

Assuming the 90 days horizon Barloworld Ltd ADR is expected to generate 1.09 times more return on investment than Armada Mercantile. However, Barloworld is 1.09 times more volatile than Armada Mercantile. It trades about 0.08 of its potential returns per unit of risk. Armada Mercantile is currently generating about 0.01 per unit of risk. If you would invest  403.00  in Barloworld Ltd ADR on September 30, 2024 and sell it today you would earn a total of  85.00  from holding Barloworld Ltd ADR or generate 21.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Barloworld Ltd ADR  vs.  Armada Mercantile

Barloworld ADR

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Barloworld Ltd ADR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Barloworld showed solid returns over the last few months and may actually be approaching a breakup point.

Armada Mercantile

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Barloworld and Armada Mercantile

The main advantage of trading using opposite Barloworld and Armada Mercantile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Barloworld position performs unexpectedly, Armada Mercantile 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 Armada Mercantile will offset losses from the drop in Armada Mercantile's long position.

The idea behind Barloworld Ltd ADR and Armada Mercantile 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.