Correlation Between Banco De and Bancolombia
Can any of the company-specific risk be diversified away by investing in both Banco De and Bancolombia 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 Banco De and Bancolombia into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Banco De Chile and Bancolombia SA ADR, you can compare the effects of market volatilities on Banco De and Bancolombia 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 Banco De with a short position of Bancolombia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banco De and Bancolombia.
Diversification Opportunities for Banco De and Bancolombia
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Banco and Bancolombia is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Banco De Chile and Bancolombia SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bancolombia SA ADR and Banco De 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 Banco De Chile are associated (or correlated) with Bancolombia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bancolombia SA ADR has no effect on the direction of Banco De i.e., Banco De and Bancolombia go up and down completely randomly.
Pair Corralation between Banco De and Bancolombia
Considering the 90-day investment horizon Banco De is expected to generate 1.94 times less return on investment than Bancolombia. But when comparing it to its historical volatility, Banco De Chile is 1.82 times less risky than Bancolombia. It trades about 0.53 of its potential returns per unit of risk. Bancolombia SA ADR is currently generating about 0.56 of returns per unit of risk over similar time horizon. If you would invest 3,199 in Bancolombia SA ADR on November 4, 2024 and sell it today you would earn a total of 756.00 from holding Bancolombia SA ADR or generate 23.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Banco De Chile vs. Bancolombia SA ADR
Performance |
| Timeline |
| Banco De Chile |
| Bancolombia SA ADR |
Banco De and Bancolombia Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Banco De and Bancolombia
The main advantage of trading using opposite Banco De and Bancolombia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Banco De position performs unexpectedly, Bancolombia 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 Bancolombia will offset losses from the drop in Bancolombia's long position.| Banco De vs. Banco Santander Brasil | Banco De vs. CrossFirst Bankshares | Banco De vs. Banco Bradesco SA | Banco De vs. CF Bankshares |
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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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