Correlation Between Foreign Trade and Bancolombia

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

By analyzing existing cross correlation between Foreign Trade Bank and Bancolombia SA ADR, you can compare the effects of market volatilities on Foreign Trade and Bancolombia 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 Foreign Trade with a short position of Bancolombia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Foreign Trade and Bancolombia.

Diversification Opportunities for Foreign Trade and Bancolombia

0.76

Correlation Coefficient

Foreign Trade  Bancolombia

Poor diversification

The 3 months correlation between Foreign and Bancolombia is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Foreign Trade Bank and Bancolombia SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bancolombia SA ADR and Foreign Trade 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 Foreign Trade Bank are associated (or correlated) with Bancolombia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bancolombia SA ADR has no effect on the direction of Foreign Trade i.e., Foreign Trade and Bancolombia go up and down completely randomly.

Pair Corralation between Foreign Trade and Bancolombia

Considering the 90-day investment horizon Foreign Trade Bank is expected to generate 1.7 times more return on investment than Bancolombia. However, Foreign Trade is 1.7 times more volatile than Bancolombia SA ADR. It trades about 0.08 of its potential returns per unit of risk. Bancolombia SA ADR is currently generating about 0.12 per unit of risk. If you would invest  3,797  in Foreign Trade Bank on December 8, 2024 and sell it today you would earn a total of  161.00  from holding Foreign Trade Bank or generate 4.24% return on investment over 90 days.

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

Foreign Trade Bank  vs.  Bancolombia SA ADR

Foreign Trade Bank

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Foreign Trade Bank are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady essential indicators, Foreign Trade showed solid returns over the last few months and may actually be approaching a breakup point.

Bancolombia SA ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bancolombia SA ADR are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent forward indicators, Bancolombia sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Foreign Trade and Bancolombia

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

The idea behind Foreign Trade Bank and Bancolombia SA 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.

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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.