Correlation Between Banco Do and South Atlantic

Can any of the company-specific risk be diversified away by investing in both Banco Do and South Atlantic 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 South Atlantic 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 South Atlantic Bancshares, you can compare the effects of market volatilities on Banco Do and South Atlantic 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 South Atlantic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banco Do and South Atlantic.

Diversification Opportunities for Banco Do and South Atlantic

-0.69

Correlation Coefficient

Banco Do  South Atlantic

Excellent diversification

The 3 months correlation between Banco and South is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Banco do Brasil and South Atlantic Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on South Atlantic Bancshares 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 South Atlantic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of South Atlantic Bancshares has no effect on the direction of Banco Do i.e., Banco Do and South Atlantic go up and down completely randomly.

Pair Corralation between Banco Do and South Atlantic

Assuming the 90 days trading horizon Banco do Brasil is expected to under-perform the South Atlantic. But the stock apears to be less risky and, when comparing its historical volatility, Banco do Brasil is 2.12 times less risky than South Atlantic. The stock trades about -0.17 of its potential returns per unit of risk. The South Atlantic Bancshares is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,400  in South Atlantic Bancshares on September 17, 2024 and sell it today you would earn a total of  175.00  from holding South Atlantic Bancshares or generate 12.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Banco do Brasil  vs.  South Atlantic Bancshares

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.

South Atlantic Bancshares

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in South Atlantic Bancshares are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating fundamental drivers, South Atlantic disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Banco Do and South Atlantic

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

The idea behind Banco do Brasil and South Atlantic Bancshares 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.