Correlation Between Barloworld and Emerald Growth

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

Diversification Opportunities for Barloworld and Emerald Growth

0.1

Correlation Coefficient

Barloworld  Emerald Growth

Average diversification

The 3 months correlation between Barloworld and Emerald is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and Emerald Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerald Growth 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 Emerald Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerald Growth has no effect on the direction of Barloworld i.e., Barloworld and Emerald Growth go up and down completely randomly.

Pair Corralation between Barloworld and Emerald Growth

Assuming the 90 days horizon Barloworld Ltd ADR is expected to under-perform the Emerald Growth. In addition to that, Barloworld is 2.79 times more volatile than Emerald Growth Fund. It trades about -0.02 of its total potential returns per unit of risk. Emerald Growth Fund is currently generating about 0.16 per unit of volatility. If you would invest  2,555  in Emerald Growth Fund on September 12, 2024 and sell it today you would earn a total of  352.00  from holding Emerald Growth Fund or generate 13.78% return on investment over 90 days.

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

Barloworld Ltd ADR  vs.  Emerald Growth Fund

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 fairly strong basic indicators, Barloworld is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Emerald Growth

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Emerald Growth Fund are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Emerald Growth showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Barloworld and Emerald Growth

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

The idea behind Barloworld Ltd ADR and Emerald Growth Fund 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.