Correlation Between Credicorp and Bancolombia

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

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

Diversification Opportunities for Credicorp and Bancolombia

0.46

Correlation Coefficient

Credicorp  Bancolombia

Very weak diversification

The 3 months correlation between Credicorp and Bancolombia is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Credicorp 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 Credicorp 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 Credicorp 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 Credicorp i.e., Credicorp and Bancolombia go up and down completely randomly.

Pair Corralation between Credicorp and Bancolombia

Considering the 90-day investment horizon Credicorp is expected to generate 0.92 times more return on investment than Bancolombia. However, Credicorp is 1.08 times less risky than Bancolombia. It trades about 0.07 of its potential returns per unit of risk. Bancolombia SA ADR is currently generating about 0.05 per unit of risk. If you would invest  14,729  in Credicorp on October 9, 2024 and sell it today you would earn a total of  3,778  from holding Credicorp or generate 25.65% return on investment over 90 days.

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

Credicorp  vs.  Bancolombia SA ADR

Credicorp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Credicorp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Credicorp is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Bancolombia SA ADR

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bancolombia SA ADR are ranked lower than 4 (%) 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 recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Credicorp and Bancolombia

The main advantage of trading using opposite Credicorp and Bancolombia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Credicorp 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 Credicorp 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.