Correlation Between Bancolombia and Givaudan

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

Diversification Opportunities for Bancolombia and Givaudan

-0.47

Correlation Coefficient

Bancolombia  Givaudan

Very good diversification

The 3 months correlation between Bancolombia and Givaudan is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Bancolombia SA ADR and Givaudan SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Givaudan SA 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 Givaudan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Givaudan SA has no effect on the direction of Bancolombia i.e., Bancolombia and Givaudan go up and down completely randomly.

Pair Corralation between Bancolombia and Givaudan

Considering the 90-day investment horizon Bancolombia is expected to generate 1.17 times less return on investment than Givaudan. But when comparing it to its historical volatility, Bancolombia SA ADR is 1.63 times less risky than Givaudan. It trades about 0.06 of its potential returns per unit of risk. Givaudan SA is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  318,200  in Givaudan SA on September 5, 2024 and sell it today you would earn a total of  114,468  from holding Givaudan SA or generate 35.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	75.96%
Values	Daily Returns

Bancolombia SA ADR  vs.  Givaudan SA

Bancolombia SA ADR

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bancolombia SA ADR are ranked lower than 2 (%) 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.

Givaudan SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Givaudan SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's fundamental drivers remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Bancolombia and Givaudan

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

The idea behind Bancolombia SA ADR and Givaudan SA 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.