Correlation Between Bancolombia and Arkema SA

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

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

Diversification Opportunities for Bancolombia and Arkema SA

0.82

Correlation Coefficient

Bancolombia  Arkema SA

Very poor diversification

The 3 months correlation between Bancolombia and Arkema is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Bancolombia SA ADR and Arkema SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arkema SA ADR and Bancolombia 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 Bancolombia SA ADR are associated (or correlated) with Arkema SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arkema SA ADR has no effect on the direction of Bancolombia i.e., Bancolombia and Arkema SA go up and down completely randomly.

Pair Corralation between Bancolombia and Arkema SA

Considering the 90-day investment horizon Bancolombia SA ADR is expected to generate 0.72 times more return on investment than Arkema SA. However, Bancolombia SA ADR is 1.38 times less risky than Arkema SA. It trades about 0.3 of its potential returns per unit of risk. Arkema SA ADR is currently generating about 0.04 per unit of risk. If you would invest  3,167  in Bancolombia SA ADR on December 30, 2024 and sell it today you would earn a total of  1,212  from holding Bancolombia SA ADR or generate 38.27% return on investment over 90 days.

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

Bancolombia SA ADR  vs.  Arkema SA ADR

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 23 (%) 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.

Arkema SA ADR

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Arkema SA ADR are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Arkema SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bancolombia and Arkema SA

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

The idea behind Bancolombia SA ADR and Arkema 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.