Correlation Between Banco Do and Elmer Bancorp

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

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

Diversification Opportunities for Banco Do and Elmer Bancorp

-0.53

Correlation Coefficient

Banco Do  Elmer Bancorp

Excellent diversification

The 3 months correlation between Banco and Elmer is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Banco do Brasil and Elmer Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elmer Bancorp and Banco Do 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 do Brasil are associated (or correlated) with Elmer Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elmer Bancorp has no effect on the direction of Banco Do i.e., Banco Do and Elmer Bancorp go up and down completely randomly.

Pair Corralation between Banco Do and Elmer Bancorp

Assuming the 90 days trading horizon Banco do Brasil is expected to under-perform the Elmer Bancorp. In addition to that, Banco Do is 3.47 times more volatile than Elmer Bancorp. It trades about -0.18 of its total potential returns per unit of risk. Elmer Bancorp is currently generating about 0.12 per unit of volatility. If you would invest  2,150  in Elmer Bancorp on September 27, 2024 and sell it today you would earn a total of  25.00  from holding Elmer Bancorp or generate 1.16% return on investment over 90 days.

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

Banco do Brasil  vs.  Elmer Bancorp

Banco do Brasil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Banco do Brasil has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Elmer Bancorp

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Elmer Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong primary indicators, Elmer Bancorp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Banco Do and Elmer Bancorp

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

The idea behind Banco do Brasil and Elmer Bancorp 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.