Correlation Between Central Bank and Banco Products

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

By analyzing existing cross correlation between Central Bank of and Banco Products Limited, you can compare the effects of market volatilities on Central Bank and Banco Products 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 Central Bank with a short position of Banco Products. Check out your portfolio center. Please also check ongoing floating volatility patterns of Central Bank and Banco Products.

Diversification Opportunities for Central Bank and Banco Products

-0.16

Correlation Coefficient

Central Bank  Banco Products

Good diversification

The 3 months correlation between Central and Banco is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Central Bank of and Banco Products Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco Products and Central Bank 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 Central Bank of are associated (or correlated) with Banco Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banco Products has no effect on the direction of Central Bank i.e., Central Bank and Banco Products go up and down completely randomly.

Pair Corralation between Central Bank and Banco Products

Assuming the 90 days trading horizon Central Bank of is expected to under-perform the Banco Products. But the stock apears to be less risky and, when comparing its historical volatility, Central Bank of is 49.95 times less risky than Banco Products. The stock trades about 0.0 of its potential returns per unit of risk. The Banco Products Limited is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  35,648  in Banco Products Limited on October 8, 2024 and sell it today you would earn a total of  12,642  from holding Banco Products Limited or generate 35.46% return on investment over 90 days.

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

Central Bank of  vs.  Banco Products Limited

Central Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Central Bank of has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Central Bank is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Banco Products

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Banco Products Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady fundamental indicators, Banco Products displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Central Bank and Banco Products

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

The idea behind Central Bank of and Banco Products Limited 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.