Correlation Between Banco De and Plaza SA

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

Diversification Opportunities for Banco De and Plaza SA

0.85

Correlation Coefficient

Banco De  Plaza SA

Very poor diversification

The 3 months correlation between Banco and Plaza is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Banco de Credito and Plaza SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plaza SA 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 Plaza SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plaza SA has no effect on the direction of Banco De i.e., Banco De and Plaza SA go up and down completely randomly.

Pair Corralation between Banco De and Plaza SA

Assuming the 90 days trading horizon Banco de Credito is expected to generate 0.77 times more return on investment than Plaza SA. However, Banco de Credito is 1.29 times less risky than Plaza SA. It trades about 0.36 of its potential returns per unit of risk. Plaza SA is currently generating about 0.22 per unit of risk. If you would invest  2,770,000  in Banco de Credito on December 31, 2024 and sell it today you would earn a total of  759,000  from holding Banco de Credito or generate 27.4% return on investment over 90 days.

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

Banco de Credito  vs.  Plaza SA

Banco de Credito

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Banco de Credito are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating forward indicators, Banco De displayed solid returns over the last few months and may actually be approaching a breakup point.

Plaza SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Plaza SA are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating essential indicators, Plaza SA sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Banco De and Plaza SA

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

The idea behind Banco de Credito and Plaza SA 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.