Correlation Between Orea Mining and Barloworld

Can any of the company-specific risk be diversified away by investing in both Orea Mining and Barloworld 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 Orea Mining and Barloworld into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Orea Mining Corp and Barloworld Ltd ADR, you can compare the effects of market volatilities on Orea Mining and Barloworld 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 Orea Mining with a short position of Barloworld. Check out your portfolio center. Please also check ongoing floating volatility patterns of Orea Mining and Barloworld.

Diversification Opportunities for Orea Mining and Barloworld

0.09

Correlation Coefficient

Orea Mining  Barloworld

Significant diversification

The 3 months correlation between Orea and Barloworld is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Orea Mining Corp and Barloworld Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barloworld ADR and Orea Mining 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 Orea Mining Corp are associated (or correlated) with Barloworld. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Barloworld ADR has no effect on the direction of Orea Mining i.e., Orea Mining and Barloworld go up and down completely randomly.

Pair Corralation between Orea Mining and Barloworld

Assuming the 90 days horizon Orea Mining Corp is expected to under-perform the Barloworld. In addition to that, Orea Mining is 3.41 times more volatile than Barloworld Ltd ADR. It trades about -0.17 of its total potential returns per unit of risk. Barloworld Ltd ADR is currently generating about 0.08 per unit of volatility. If you would invest  400.00  in Barloworld Ltd ADR on January 28, 2024 and sell it today you would earn a total of  50.00  from holding Barloworld Ltd ADR or generate 12.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	97.73%
Values	Daily Returns

Orea Mining Corp  vs.  Barloworld Ltd ADR

Orea Mining Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Orea Mining Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Barloworld ADR

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Barloworld Ltd ADR are ranked lower than 3 (%) 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.

Pair Trading with Orea Mining and Barloworld

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

The idea behind Orea Mining Corp and Barloworld Ltd ADR 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.

Check out your portfolio center.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.