Correlation Between Barloworld and Kinetics Small

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

Diversification Opportunities for Barloworld and Kinetics Small

0.16

Correlation Coefficient

Barloworld  Kinetics Small

Average diversification

The 3 months correlation between Barloworld and Kinetics is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and Kinetics Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kinetics Small Cap 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 Kinetics Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kinetics Small Cap has no effect on the direction of Barloworld i.e., Barloworld and Kinetics Small go up and down completely randomly.

Pair Corralation between Barloworld and Kinetics Small

Assuming the 90 days horizon Barloworld Ltd ADR is expected to generate 3.01 times more return on investment than Kinetics Small. However, Barloworld is 3.01 times more volatile than Kinetics Small Cap. It trades about 0.13 of its potential returns per unit of risk. Kinetics Small Cap is currently generating about 0.23 per unit of risk. If you would invest  403.00  in Barloworld Ltd ADR on September 13, 2024 and sell it today you would earn a total of  222.00  from holding Barloworld Ltd ADR or generate 55.09% 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.  Kinetics Small Cap

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.

Kinetics Small Cap

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Kinetics Small Cap are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Kinetics Small showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Barloworld and Kinetics Small

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

The idea behind Barloworld Ltd ADR and Kinetics Small Cap 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.