Correlation Between Barloworld and Seven Arts

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

Diversification Opportunities for Barloworld and Seven Arts

-0.26

Correlation Coefficient

Barloworld  Seven Arts

Very good diversification

The 3 months correlation between Barloworld and Seven is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and Seven Arts Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seven Arts Entertainment 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 Seven Arts. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Seven Arts Entertainment has no effect on the direction of Barloworld i.e., Barloworld and Seven Arts go up and down completely randomly.

Pair Corralation between Barloworld and Seven Arts

Assuming the 90 days horizon Barloworld is expected to generate 2.12 times less return on investment than Seven Arts. But when comparing it to its historical volatility, Barloworld Ltd ADR is 2.23 times less risky than Seven Arts. It trades about 0.06 of its potential returns per unit of risk. Seven Arts Entertainment is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  0.13  in Seven Arts Entertainment on September 19, 2024 and sell it today you would lose (0.10) from holding Seven Arts Entertainment or give up 76.92% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	71.95%
Values	Daily Returns

Barloworld Ltd ADR  vs.  Seven Arts Entertainment

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.

Seven Arts Entertainment

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Seven Arts Entertainment are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Seven Arts showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Barloworld and Seven Arts

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

The idea behind Barloworld Ltd ADR and Seven Arts Entertainment 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.