Correlation Between Banco Bradesco and Century Aluminum

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

Diversification Opportunities for Banco Bradesco and Century Aluminum

0.22

Correlation Coefficient

Banco Bradesco  Century Aluminum

Modest diversification

The 3 months correlation between Banco and Century is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Banco Bradesco SA and Century Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Aluminum 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 Century Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Aluminum has no effect on the direction of Banco Bradesco i.e., Banco Bradesco and Century Aluminum go up and down completely randomly.

Pair Corralation between Banco Bradesco and Century Aluminum

Given the investment horizon of 90 days Banco Bradesco is expected to generate 1.13 times less return on investment than Century Aluminum. But when comparing it to its historical volatility, Banco Bradesco SA is 2.4 times less risky than Century Aluminum. It trades about 0.11 of its potential returns per unit of risk. Century Aluminum is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,833  in Century Aluminum on December 20, 2024 and sell it today you would earn a total of  140.00  from holding Century Aluminum or generate 7.64% return on investment over 90 days.

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

Banco Bradesco SA  vs.  Century Aluminum

Banco Bradesco SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Banco Bradesco SA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting fundamental indicators, Banco Bradesco displayed solid returns over the last few months and may actually be approaching a breakup point.

Century Aluminum

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Century Aluminum are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Century Aluminum showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Banco Bradesco and Century Aluminum

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

The idea behind Banco Bradesco SA and Century Aluminum 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.