Correlation Between Bancolombia and Grupo Financiero

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

Diversification Opportunities for Bancolombia and Grupo Financiero

0.66

Correlation Coefficient

Bancolombia  Grupo Financiero

Poor diversification

The 3 months correlation between Bancolombia and Grupo is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Bancolombia SA ADR and Grupo Financiero Galicia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grupo Financiero Galicia 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 Grupo Financiero. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grupo Financiero Galicia has no effect on the direction of Bancolombia i.e., Bancolombia and Grupo Financiero go up and down completely randomly.

Pair Corralation between Bancolombia and Grupo Financiero

Considering the 90-day investment horizon Bancolombia is expected to generate 5.72 times less return on investment than Grupo Financiero. But when comparing it to its historical volatility, Bancolombia SA ADR is 1.89 times less risky than Grupo Financiero. It trades about 0.05 of its potential returns per unit of risk. Grupo Financiero Galicia is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  833.00  in Grupo Financiero Galicia on September 20, 2024 and sell it today you would earn a total of  6,039  from holding Grupo Financiero Galicia or generate 724.97% return on investment over 90 days.

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

Bancolombia SA ADR  vs.  Grupo Financiero Galicia

Bancolombia SA ADR

Risk-Adjusted Performance

3 of 100

Weak

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

Grupo Financiero Galicia

Risk-Adjusted Performance

18 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Grupo Financiero Galicia are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Grupo Financiero disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bancolombia and Grupo Financiero

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

The idea behind Bancolombia SA ADR and Grupo Financiero Galicia 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.