Correlation Between Banco ABC and Banco Mercantil

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

By analyzing existing cross correlation between Banco ABC Brasil and Banco Mercantil do, you can compare the effects of market volatilities on Banco ABC and Banco Mercantil 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 ABC with a short position of Banco Mercantil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banco ABC and Banco Mercantil.

Diversification Opportunities for Banco ABC and Banco Mercantil

0.49

Correlation Coefficient

Banco ABC  Banco Mercantil

Very weak diversification

The 3 months correlation between Banco and Banco is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Banco ABC Brasil and Banco Mercantil do in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco Mercantil do and Banco ABC 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 ABC Brasil are associated (or correlated) with Banco Mercantil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banco Mercantil do has no effect on the direction of Banco ABC i.e., Banco ABC and Banco Mercantil go up and down completely randomly.

Pair Corralation between Banco ABC and Banco Mercantil

Assuming the 90 days trading horizon Banco ABC is expected to generate 1.1 times less return on investment than Banco Mercantil. But when comparing it to its historical volatility, Banco ABC Brasil is 1.1 times less risky than Banco Mercantil. It trades about 0.06 of its potential returns per unit of risk. Banco Mercantil do is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3,188  in Banco Mercantil do on December 22, 2024 and sell it today you would earn a total of  192.00  from holding Banco Mercantil do or generate 6.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

Banco ABC Brasil  vs.  Banco Mercantil do

Banco ABC Brasil

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Banco ABC Brasil are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Banco ABC may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Banco Mercantil do

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Banco Mercantil do are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Banco Mercantil may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Banco ABC and Banco Mercantil

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

The idea behind Banco ABC Brasil and Banco Mercantil do 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 Transaction History module to view history of all your transactions and understand their impact on performance.