Correlation Between Herc Holdings and Barloworld

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

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

Diversification Opportunities for Herc Holdings and Barloworld

-0.13

Correlation Coefficient

Herc Holdings  Barloworld

Good diversification

The 3 months correlation between Herc and Barloworld is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Herc Holdings and Barloworld Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barloworld ADR and Herc Holdings 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 Herc Holdings 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 Herc Holdings i.e., Herc Holdings and Barloworld go up and down completely randomly.

Pair Corralation between Herc Holdings and Barloworld

Considering the 90-day investment horizon Herc Holdings is expected to generate 1.14 times less return on investment than Barloworld. But when comparing it to its historical volatility, Herc Holdings is 1.92 times less risky than Barloworld. It trades about 0.11 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 August 25, 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

Herc Holdings  vs.  Barloworld Ltd ADR

Herc Holdings

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Herc Holdings are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Herc Holdings demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Barloworld ADR

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Herc Holdings and Barloworld

The main advantage of trading using opposite Herc Holdings and Barloworld positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Herc Holdings 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 Herc Holdings 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.