Correlation Between Banco Santander and Bancolombia

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

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

Diversification Opportunities for Banco Santander and Bancolombia

0.8

Correlation Coefficient

Banco Santander  Bancolombia

Very poor diversification

The 3 months correlation between Banco and Bancolombia is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Banco Santander Brasil 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 Banco Santander 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 Santander Brasil 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 Banco Santander i.e., Banco Santander and Bancolombia go up and down completely randomly.

Pair Corralation between Banco Santander and Bancolombia

Given the investment horizon of 90 days Banco Santander is expected to generate 6.01 times less return on investment than Bancolombia. In addition to that, Banco Santander is 1.39 times more volatile than Bancolombia SA ADR. It trades about 0.03 of its total potential returns per unit of risk. Bancolombia SA ADR is currently generating about 0.27 per unit of volatility. If you would invest  3,149  in Bancolombia SA ADR on December 4, 2024 and sell it today you would earn a total of  935.00  from holding Bancolombia SA ADR or generate 29.69% return on investment over 90 days.

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

Banco Santander Brasil  vs.  Bancolombia SA ADR

Banco Santander Brasil

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Banco Santander Brasil are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental drivers, Banco Santander is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

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 Banco Santander and Bancolombia

The main advantage of trading using opposite Banco Santander and Bancolombia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Banco Santander 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 Banco Santander Brasil 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.

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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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.