Correlation Between Foreign Trade and Grupo Financiero

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

Diversification Opportunities for Foreign Trade and Grupo Financiero

0.83

Correlation Coefficient

Foreign Trade  Grupo Financiero

Very poor diversification

The 3 months correlation between Foreign and Grupo is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Foreign Trade Bank and Grupo Financiero Galicia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grupo Financiero Galicia 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 Grupo Financiero. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grupo Financiero Galicia has no effect on the direction of Foreign Trade i.e., Foreign Trade and Grupo Financiero go up and down completely randomly.

Pair Corralation between Foreign Trade and Grupo Financiero

Considering the 90-day investment horizon Foreign Trade is expected to generate 1.98 times less return on investment than Grupo Financiero. But when comparing it to its historical volatility, Foreign Trade Bank is 2.45 times less risky than Grupo Financiero. It trades about 0.23 of its potential returns per unit of risk. Grupo Financiero Galicia is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  5,593  in Grupo Financiero Galicia on September 22, 2024 and sell it today you would earn a total of  766.00  from holding Grupo Financiero Galicia or generate 13.7% return on investment over 90 days.

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

Foreign Trade Bank  vs.  Grupo Financiero Galicia

Foreign Trade Bank

Risk-Adjusted Performance

10 of 100

OK

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

Grupo Financiero Galicia

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Grupo Financiero Galicia are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite abnormal basic indicators, Grupo Financiero disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Foreign Trade and Grupo Financiero

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

The idea behind Foreign Trade Bank and Grupo Financiero Galicia 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.