Correlation Between Banco Do and Commerzbank

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

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

Diversification Opportunities for Banco Do and Commerzbank

0.86

Correlation Coefficient

Banco Do  Commerzbank

Very poor diversification

The 3 months correlation between Banco and Commerzbank is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Banco Do Brasil and Commerzbank AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commerzbank AG and Banco Do 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 Do Brasil are associated (or correlated) with Commerzbank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commerzbank AG has no effect on the direction of Banco Do i.e., Banco Do and Commerzbank go up and down completely randomly.

Pair Corralation between Banco Do and Commerzbank

Assuming the 90 days horizon Banco Do is expected to generate 2.23 times less return on investment than Commerzbank. But when comparing it to its historical volatility, Banco Do Brasil is 1.2 times less risky than Commerzbank. It trades about 0.13 of its potential returns per unit of risk. Commerzbank AG is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  1,505  in Commerzbank AG on December 1, 2024 and sell it today you would earn a total of  655.00  from holding Commerzbank AG or generate 43.52% return on investment over 90 days.

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

Banco Do Brasil  vs.  Commerzbank AG

Banco Do Brasil

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Banco Do Brasil are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Banco Do showed solid returns over the last few months and may actually be approaching a breakup point.

Commerzbank AG

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Commerzbank AG are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental drivers, Commerzbank reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Banco Do and Commerzbank

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

The idea behind Banco Do Brasil and Commerzbank AG 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.