Correlation Between High Yield and Barloworld

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

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

Diversification Opportunities for High Yield and Barloworld

-0.52

Correlation Coefficient

High Yield  Barloworld

Excellent diversification

The 3 months correlation between High and Barloworld is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding High Yield Municipal Fund and Barloworld Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barloworld ADR and High Yield 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 High Yield Municipal Fund 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 High Yield i.e., High Yield and Barloworld go up and down completely randomly.

Pair Corralation between High Yield and Barloworld

Assuming the 90 days horizon High Yield Municipal Fund is expected to under-perform the Barloworld. But the mutual fund apears to be less risky and, when comparing its historical volatility, High Yield Municipal Fund is 31.19 times less risky than Barloworld. The mutual fund trades about -0.05 of its potential returns per unit of risk. The Barloworld Ltd ADR is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  354.00  in Barloworld Ltd ADR on February 3, 2024 and sell it today you would earn a total of  57.00  from holding Barloworld Ltd ADR or generate 16.1% return on investment over 90 days.

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

High Yield Municipal Fund  vs.  Barloworld Ltd ADR

High Yield Municipal

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in High Yield Municipal Fund are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, High Yield is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Barloworld ADR

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Barloworld Ltd ADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Barloworld is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with High Yield and Barloworld

The main advantage of trading using opposite High Yield and Barloworld positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if High Yield 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 High Yield Municipal Fund 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.

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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.