Correlation Between Banco Bradesco and Grupo Aval

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

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

Diversification Opportunities for Banco Bradesco and Grupo Aval

0.71

Correlation Coefficient

Banco Bradesco  Grupo Aval

Poor diversification

The 3 months correlation between Banco and Grupo is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Banco Bradesco SA and Grupo Aval in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grupo Aval and Banco Bradesco 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 Bradesco SA are associated (or correlated) with Grupo Aval. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grupo Aval has no effect on the direction of Banco Bradesco i.e., Banco Bradesco and Grupo Aval go up and down completely randomly.

Pair Corralation between Banco Bradesco and Grupo Aval

Considering the 90-day investment horizon Banco Bradesco is expected to generate 10.75 times less return on investment than Grupo Aval. But when comparing it to its historical volatility, Banco Bradesco SA is 1.29 times less risky than Grupo Aval. It trades about 0.03 of its potential returns per unit of risk. Grupo Aval is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  208.00  in Grupo Aval on December 2, 2024 and sell it today you would earn a total of  78.00  from holding Grupo Aval or generate 37.5% return on investment over 90 days.

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

Banco Bradesco SA  vs.  Grupo Aval

Banco Bradesco SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Banco Bradesco SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, Banco Bradesco is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Grupo Aval

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Grupo Aval are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, Grupo Aval disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Banco Bradesco and Grupo Aval

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

The idea behind Banco Bradesco SA and Grupo Aval 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.