Correlation Between BancFirst and Bancolombia

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

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

Diversification Opportunities for BancFirst and Bancolombia

0.63

Correlation Coefficient

BancFirst  Bancolombia

Poor diversification

The 3 months correlation between BancFirst and Bancolombia is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding BancFirst 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 BancFirst 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 BancFirst 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 BancFirst i.e., BancFirst and Bancolombia go up and down completely randomly.

Pair Corralation between BancFirst and Bancolombia

Given the investment horizon of 90 days BancFirst is expected to under-perform the Bancolombia. In addition to that, BancFirst is 1.42 times more volatile than Bancolombia SA ADR. It trades about -0.08 of its total potential returns per unit of risk. Bancolombia SA ADR is currently generating about -0.06 per unit of volatility. If you would invest  3,276  in Bancolombia SA ADR on September 22, 2024 and sell it today you would lose (57.00) from holding Bancolombia SA ADR or give up 1.74% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

BancFirst  vs.  Bancolombia SA ADR

BancFirst

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BancFirst are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, BancFirst reported solid returns over the last few months and may actually be approaching a breakup point.

Bancolombia SA ADR

Risk-Adjusted Performance

1 of 100

Weak

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

Pair Trading with BancFirst and Bancolombia

The main advantage of trading using opposite BancFirst and Bancolombia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BancFirst 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.

The idea behind BancFirst and Bancolombia SA 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.