Correlation Between Barloworld and Putnam Small

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

Diversification Opportunities for Barloworld and Putnam Small

-0.16

Correlation Coefficient

Barloworld  Putnam Small

Good diversification

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

Pair Corralation between Barloworld and Putnam Small

Assuming the 90 days horizon Barloworld Ltd ADR is expected to generate 6.66 times more return on investment than Putnam Small. However, Barloworld is 6.66 times more volatile than Putnam Small Cap. It trades about 0.1 of its potential returns per unit of risk. Putnam Small Cap is currently generating about -0.02 per unit of risk. If you would invest  354.00  in Barloworld Ltd ADR on March 13, 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.

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

Barloworld Ltd ADR  vs.  Putnam Small Cap

Barloworld ADR

Risk-Adjusted Performance

7 of 100

OK

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 fragile basic indicators, Barloworld showed solid returns over the last few months and may actually be approaching a breakup point.

Putnam Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Putnam Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Putnam Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Barloworld and Putnam Small

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

The idea behind Barloworld Ltd ADR and Putnam 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.