Correlation Between Barloworld and Eagle Financial

Can any of the company-specific risk be diversified away by investing in both Barloworld and Eagle Financial 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 Eagle Financial 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 Eagle Financial Services, you can compare the effects of market volatilities on Barloworld and Eagle Financial 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 Eagle Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Barloworld and Eagle Financial.

Diversification Opportunities for Barloworld and Eagle Financial

0.33

Correlation Coefficient

Barloworld  Eagle Financial

Weak diversification

The 3 months correlation between Barloworld and Eagle is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and Eagle Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eagle Financial Services 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 Eagle Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eagle Financial Services has no effect on the direction of Barloworld i.e., Barloworld and Eagle Financial go up and down completely randomly.

Pair Corralation between Barloworld and Eagle Financial

Assuming the 90 days horizon Barloworld Ltd ADR is expected to generate 3.92 times more return on investment than Eagle Financial. However, Barloworld is 3.92 times more volatile than Eagle Financial Services. It trades about 0.08 of its potential returns per unit of risk. Eagle Financial Services is currently generating about 0.09 per unit of risk. If you would invest  379.00  in Barloworld Ltd ADR on September 13, 2024 and sell it today you would earn a total of  246.00  from holding Barloworld Ltd ADR or generate 64.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	87.62%
Values	Daily Returns

Barloworld Ltd ADR  vs.  Eagle Financial Services

Barloworld ADR

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Barloworld Ltd ADR are ranked lower than 10 (%) 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.

Eagle Financial Services

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eagle Financial Services are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Eagle Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Barloworld and Eagle Financial

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

The idea behind Barloworld Ltd ADR and Eagle Financial Services 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.