Correlation Between Bancolombia and Banco Santander

Can any of the company-specific risk be diversified away by investing in both Bancolombia and Banco Santander 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 Banco Santander 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 Banco Santander Brasil, you can compare the effects of market volatilities on Bancolombia and Banco Santander 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 Banco Santander. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bancolombia and Banco Santander.

Diversification Opportunities for Bancolombia and Banco Santander

0.8

Correlation Coefficient

Bancolombia  Banco Santander

Very poor diversification

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

Pair Corralation between Bancolombia and Banco Santander

Considering the 90-day investment horizon Bancolombia SA ADR is expected to generate 0.72 times more return on investment than Banco Santander. However, Bancolombia SA ADR is 1.38 times less risky than Banco Santander. It trades about 0.25 of its potential returns per unit of risk. Banco Santander Brasil is currently generating about 0.04 per unit of risk. If you would invest  3,181  in Bancolombia SA ADR on December 3, 2024 and sell it today you would earn a total of  903.00  from holding Bancolombia SA ADR or generate 28.39% 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.  Banco Santander Brasil

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 19 (%) 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.

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 3 (%) 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.

Pair Trading with Bancolombia and Banco Santander

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

The idea behind Bancolombia SA ADR and Banco Santander 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.