Can any of the company-specific risk be diversified away by investing in both Barloworld and John Hancock 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 John Hancock 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 John Hancock Multifactor, you can compare the effects of market volatilities on Barloworld and John Hancock 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 John Hancock. Check out your portfolio center. Please also check ongoing floating volatility patterns of Barloworld and John Hancock.
Diversification Opportunities for Barloworld and John Hancock
The 3 months correlation between Barloworld and John is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and John Hancock Multifactor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on John Hancock Multifactor 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 John Hancock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of John Hancock Multifactor has no effect on the direction of Barloworld i.e., Barloworld and John Hancock go up and down completely randomly.
Pair Corralation between Barloworld and John Hancock
Assuming the 90 days horizon Barloworld Ltd ADR is expected to generate 10.64 times more return on investment than John Hancock. However, Barloworld is 10.64 times more volatile than John Hancock Multifactor. It trades about 0.1 of its potential returns per unit of risk. John Hancock Multifactor is currently generating about 0.05 per unit of risk. If you would invest 354.00 in Barloworld Ltd ADR on March 6, 2024 and sell it today you would earn a total of 111.00 from holding Barloworld Ltd ADR or generate 31.36% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Barloworld Ltd ADR are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Barloworld showed solid returns over the last few months and may actually be approaching a breakup point.
Compared to the overall equity markets, risk-adjusted returns on investments in John Hancock Multifactor are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent primary indicators, John Hancock is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.