Correlation Between BNP Paribas and Banco Do

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

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

Diversification Opportunities for BNP Paribas and Banco Do

0.8

Correlation Coefficient

BNP Paribas  Banco Do

Very poor diversification

The 3 months correlation between BNP and Banco is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding BNP Paribas SA and Banco Do Brasil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco Do Brasil and BNP Paribas 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 BNP Paribas SA are associated (or correlated) with Banco Do. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banco Do Brasil has no effect on the direction of BNP Paribas i.e., BNP Paribas and Banco Do go up and down completely randomly.

Pair Corralation between BNP Paribas and Banco Do

Assuming the 90 days horizon BNP Paribas SA is expected to generate 1.0 times more return on investment than Banco Do. However, BNP Paribas SA is 1.0 times less risky than Banco Do. It trades about 0.28 of its potential returns per unit of risk. Banco Do Brasil is currently generating about 0.2 per unit of risk. If you would invest  6,103  in BNP Paribas SA on December 27, 2024 and sell it today you would earn a total of  2,577  from holding BNP Paribas SA or generate 42.23% return on investment over 90 days.

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

BNP Paribas SA  vs.  Banco Do Brasil

BNP Paribas SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BNP Paribas SA are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, BNP Paribas reported solid returns over the last few months and may actually be approaching a breakup point.

Banco Do Brasil

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Banco Do Brasil are ranked lower than 15 (%) 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.

Pair Trading with BNP Paribas and Banco Do

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

The idea behind BNP Paribas SA and Banco Do Brasil 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.