Correlation Between Banco Bradesco and Farmers Bancorp

Can any of the company-specific risk be diversified away by investing in both Banco Bradesco and Farmers 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 Bradesco and Farmers Bancorp 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 Farmers Bancorp, you can compare the effects of market volatilities on Banco Bradesco and Farmers 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 Bradesco with a short position of Farmers Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banco Bradesco and Farmers Bancorp.

Diversification Opportunities for Banco Bradesco and Farmers Bancorp

0.39

Correlation Coefficient

Banco Bradesco  Farmers Bancorp

Weak diversification

The 3 months correlation between Banco and Farmers is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Banco Bradesco SA and Farmers Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmers Bancorp 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 Farmers Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farmers Bancorp has no effect on the direction of Banco Bradesco i.e., Banco Bradesco and Farmers Bancorp go up and down completely randomly.

Pair Corralation between Banco Bradesco and Farmers Bancorp

Considering the 90-day investment horizon Banco Bradesco SA is expected to generate 2.24 times more return on investment than Farmers Bancorp. However, Banco Bradesco is 2.24 times more volatile than Farmers Bancorp. It trades about 0.08 of its potential returns per unit of risk. Farmers Bancorp is currently generating about 0.1 per unit of risk. If you would invest  188.00  in Banco Bradesco SA on December 11, 2024 and sell it today you would earn a total of  12.00  from holding Banco Bradesco SA or generate 6.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	77.5%
Values	Daily Returns

Banco Bradesco SA  vs.  Farmers Bancorp

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.

Farmers Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Farmers Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, Farmers Bancorp is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Banco Bradesco and Farmers Bancorp

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

The idea behind Banco Bradesco SA and Farmers 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.