Correlation Between Capital World and Barloworld
Can any of the company-specific risk be diversified away by investing in both Capital World 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 Capital World and Barloworld into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Capital World Bond and Barloworld Ltd ADR, you can compare the effects of market volatilities on Capital World 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 Capital World with a short position of Barloworld. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital World and Barloworld.
Diversification Opportunities for Capital World and Barloworld
-0.05 | Correlation Coefficient |
Good diversification
The 3 months correlation between Capital and Barloworld is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Capital World Bond and Barloworld Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barloworld ADR and Capital World 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 Capital World Bond 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 Capital World i.e., Capital World and Barloworld go up and down completely randomly.
Pair Corralation between Capital World and Barloworld
Assuming the 90 days horizon Capital World is expected to generate 57.46 times less return on investment than Barloworld. But when comparing it to its historical volatility, Capital World Bond is 13.22 times less risky than Barloworld. It trades about 0.02 of its potential returns per unit of risk. Barloworld Ltd ADR is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 403.00 in Barloworld Ltd ADR on September 1, 2024 and sell it today you would earn a total of 20.00 from holding Barloworld Ltd ADR or generate 4.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Capital World Bond vs. Barloworld Ltd ADR
Performance |
| Timeline |
| Capital World Bond |
| Barloworld ADR |
Capital World and Barloworld Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Capital World and Barloworld
The main advantage of trading using opposite Capital World and Barloworld positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital World 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.| Capital World vs. Gmo Resources | Capital World vs. Dreyfus Natural Resources | Capital World vs. Franklin Natural Resources | Capital World vs. Oil Gas Ultrasector |
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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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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