Correlation Between Barloworld and Vanguard Large

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

Diversification Opportunities for Barloworld and Vanguard Large

0.36

Correlation Coefficient

Barloworld  Vanguard Large

Weak diversification

The 3 months correlation between Barloworld and Vanguard is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Barloworld Ltd ADR and Vanguard Large Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Large 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 Vanguard Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Large Cap has no effect on the direction of Barloworld i.e., Barloworld and Vanguard Large go up and down completely randomly.

Pair Corralation between Barloworld and Vanguard Large

Assuming the 90 days horizon Barloworld Ltd ADR is expected to generate 11.49 times more return on investment than Vanguard Large. However, Barloworld is 11.49 times more volatile than Vanguard Large Cap Index. It trades about 0.06 of its potential returns per unit of risk. Vanguard Large Cap Index is currently generating about 0.08 per unit of risk. If you would invest  408.00  in Barloworld Ltd ADR on March 7, 2024 and sell it today you would earn a total of  57.00  from holding Barloworld Ltd ADR or generate 13.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.6%
Values	Daily Returns

Barloworld Ltd ADR  vs.  Vanguard Large Cap Index

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

Vanguard Large Cap

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Large Cap Index are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Vanguard Large is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Barloworld and Vanguard Large

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

The idea behind Barloworld Ltd ADR and Vanguard Large Cap Index 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.