Correlation Between BBVA Banco and Bancolombia

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

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

Diversification Opportunities for BBVA Banco and Bancolombia

0.59

Correlation Coefficient

BBVA Banco  Bancolombia

Very weak diversification

The 3 months correlation between BBVA and Bancolombia is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding BBVA Banco Frances 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 BBVA Banco 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 BBVA Banco Frances 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 BBVA Banco i.e., BBVA Banco and Bancolombia go up and down completely randomly.

Pair Corralation between BBVA Banco and Bancolombia

Given the investment horizon of 90 days BBVA Banco Frances is expected to generate 2.44 times more return on investment than Bancolombia. However, BBVA Banco is 2.44 times more volatile than Bancolombia SA ADR. It trades about 0.15 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  477.00  in BBVA Banco Frances on September 20, 2024 and sell it today you would earn a total of  1,265  from holding BBVA Banco Frances or generate 265.2% return on investment over 90 days.

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

BBVA Banco Frances  vs.  Bancolombia SA ADR

BBVA Banco Frances

Risk-Adjusted Performance

13 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BBVA Banco Frances are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, BBVA Banco reported solid returns over the last few months and may actually be approaching a breakup point.

Bancolombia SA ADR

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bancolombia SA ADR are ranked lower than 3 (%) 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 BBVA Banco and Bancolombia

The main advantage of trading using opposite BBVA Banco and Bancolombia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BBVA Banco 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 BBVA Banco Frances 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.