Correlation Between Bancolombia and National Capital

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

Diversification Opportunities for Bancolombia and National Capital

-0.19

Correlation Coefficient

Bancolombia  National Capital

Good diversification

The 3 months correlation between Bancolombia and National is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Bancolombia SA ADR and National Capital Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Capital Bank 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 National Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Capital Bank has no effect on the direction of Bancolombia i.e., Bancolombia and National Capital go up and down completely randomly.

Pair Corralation between Bancolombia and National Capital

Considering the 90-day investment horizon Bancolombia is expected to generate 323.05 times less return on investment than National Capital. But when comparing it to its historical volatility, Bancolombia SA ADR is 68.66 times less risky than National Capital. It trades about 0.06 of its potential returns per unit of risk. National Capital Bank is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  4,570  in National Capital Bank on October 8, 2024 and sell it today you would earn a total of  1,730  from holding National Capital Bank or generate 37.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Bancolombia SA ADR  vs.  National Capital Bank

Bancolombia SA ADR

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bancolombia SA ADR are ranked lower than 4 (%) 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.

National Capital Bank

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in National Capital Bank are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, National Capital sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bancolombia and National Capital

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

The idea behind Bancolombia SA ADR and National Capital Bank 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.