Correlation Between Banco Do and Banco Mercantil

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

By analyzing existing cross correlation between Banco do Estado and Banco Mercantil do, you can compare the effects of market volatilities on Banco Do and Banco Mercantil 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 Banco Mercantil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banco Do and Banco Mercantil.

Diversification Opportunities for Banco Do and Banco Mercantil

0.04

Correlation Coefficient

Banco Do  Banco Mercantil

Significant diversification

The 3 months correlation between Banco and Banco is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Banco do Estado and Banco Mercantil do in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco Mercantil do 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 Estado are associated (or correlated) with Banco Mercantil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banco Mercantil do has no effect on the direction of Banco Do i.e., Banco Do and Banco Mercantil go up and down completely randomly.

Pair Corralation between Banco Do and Banco Mercantil

Assuming the 90 days trading horizon Banco do Estado is expected to under-perform the Banco Mercantil. But the stock apears to be less risky and, when comparing its historical volatility, Banco do Estado is 1.53 times less risky than Banco Mercantil. The stock trades about -0.22 of its potential returns per unit of risk. The Banco Mercantil do is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  3,899  in Banco Mercantil do on October 12, 2024 and sell it today you would lose (134.00) from holding Banco Mercantil do or give up 3.44% of portfolio value over 90 days.

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

Banco do Estado  vs.  Banco Mercantil do

Banco do Estado

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Banco do Estado has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Banco Mercantil do

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Banco Mercantil do has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Banco Mercantil is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Banco Do and Banco Mercantil

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

The idea behind Banco do Estado and Banco Mercantil do 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.