Correlation Between Banco Da and Banco ABC

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

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

Diversification Opportunities for Banco Da and Banco ABC

0.64

Correlation Coefficient

Banco Da  Banco ABC

Poor diversification

The 3 months correlation between Banco and Banco is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Banco da Amaznia and Banco ABC Brasil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco ABC Brasil and Banco Da 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 da Amaznia are associated (or correlated) with Banco ABC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banco ABC Brasil has no effect on the direction of Banco Da i.e., Banco Da and Banco ABC go up and down completely randomly.

Pair Corralation between Banco Da and Banco ABC

Assuming the 90 days trading horizon Banco da Amaznia is expected to generate 0.5 times more return on investment than Banco ABC. However, Banco da Amaznia is 2.01 times less risky than Banco ABC. It trades about 0.2 of its potential returns per unit of risk. Banco ABC Brasil is currently generating about 0.06 per unit of risk. If you would invest  8,420  in Banco da Amaznia on December 22, 2024 and sell it today you would earn a total of  960.00  from holding Banco da Amaznia or generate 11.4% return on investment over 90 days.

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

Banco da Amaznia  vs.  Banco ABC Brasil

Banco da Amaznia

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Banco da Amaznia are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Banco Da may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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.

Pair Trading with Banco Da and Banco ABC

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

The idea behind Banco da Amaznia and Banco ABC Brasil 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.