Correlation Between Banco De and Cencosud

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

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

Diversification Opportunities for Banco De and Cencosud

0.5

Correlation Coefficient

Banco De  Cencosud

Very weak diversification

The 3 months correlation between Banco and Cencosud is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Banco de Credito and Cencosud in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cencosud and Banco De 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 de Credito are associated (or correlated) with Cencosud. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cencosud has no effect on the direction of Banco De i.e., Banco De and Cencosud go up and down completely randomly.

Pair Corralation between Banco De and Cencosud

Assuming the 90 days trading horizon Banco De is expected to generate 12.46 times less return on investment than Cencosud. But when comparing it to its historical volatility, Banco de Credito is 1.0 times less risky than Cencosud. It trades about 0.01 of its potential returns per unit of risk. Cencosud is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  186,200  in Cencosud on September 4, 2024 and sell it today you would earn a total of  21,800  from holding Cencosud or generate 11.71% return on investment over 90 days.

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

Banco de Credito  vs.  Cencosud

Banco de Credito

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Banco de Credito has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Banco De is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Cencosud

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cencosud are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Cencosud may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Banco De and Cencosud

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

The idea behind Banco de Credito and Cencosud 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.

Check out your portfolio center.

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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.