Correlation Between Barloworld and Evergreen Warrant

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

Diversification Opportunities for Barloworld and Evergreen Warrant

0.15

Correlation Coefficient

Barloworld  Evergreen Warrant

Average diversification

The 3 months correlation between Barloworld and Evergreen is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and Evergreen Warrant in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evergreen Warrant 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 Evergreen Warrant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evergreen Warrant has no effect on the direction of Barloworld i.e., Barloworld and Evergreen Warrant go up and down completely randomly.

Pair Corralation between Barloworld and Evergreen Warrant

Assuming the 90 days horizon Barloworld is expected to generate 1.02 times less return on investment than Evergreen Warrant. But when comparing it to its historical volatility, Barloworld Ltd ADR is 2.27 times less risky than Evergreen Warrant. It trades about 0.16 of its potential returns per unit of risk. Evergreen Warrant is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  8.99  in Evergreen Warrant on February 11, 2024 and sell it today you would earn a total of  0.09  from holding Evergreen Warrant or generate 1.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	69.57%
Values	Daily Returns

Barloworld Ltd ADR  vs.  Evergreen Warrant

Barloworld ADR

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Barloworld Ltd ADR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Barloworld may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Evergreen Warrant

Risk-Adjusted Performance

12 of 100

Good

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

Pair Trading with Barloworld and Evergreen Warrant

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

The idea behind Barloworld Ltd ADR and Evergreen Warrant 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.