Correlation Between Banco Bradesco and UniCredit SpA

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

Diversification Opportunities for Banco Bradesco and UniCredit SpA

0.56

Correlation Coefficient

Banco Bradesco  UniCredit SpA

Very weak diversification

The 3 months correlation between Banco and UniCredit is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Banco Bradesco SA and UniCredit SpA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UniCredit SpA ADR 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 UniCredit SpA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UniCredit SpA ADR has no effect on the direction of Banco Bradesco i.e., Banco Bradesco and UniCredit SpA go up and down completely randomly.

Pair Corralation between Banco Bradesco and UniCredit SpA

Considering the 90-day investment horizon Banco Bradesco SA is expected to under-perform the UniCredit SpA. In addition to that, Banco Bradesco is 1.93 times more volatile than UniCredit SpA ADR. It trades about -0.3 of its total potential returns per unit of risk. UniCredit SpA ADR is currently generating about 0.18 per unit of volatility. If you would invest  1,877  in UniCredit SpA ADR on September 27, 2024 and sell it today you would earn a total of  108.00  from holding UniCredit SpA ADR or generate 5.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Banco Bradesco SA  vs.  UniCredit SpA ADR

Banco Bradesco SA

Risk-Adjusted Performance

0 of 100

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 weak performance in the last few months, the Stock's fundamental drivers remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

UniCredit SpA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days UniCredit SpA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Banco Bradesco and UniCredit SpA

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

The idea behind Banco Bradesco SA and UniCredit SpA 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.