Correlation Between Bancolombia and National Bankshares

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

Diversification Opportunities for Bancolombia and National Bankshares

-0.47

Correlation Coefficient

Bancolombia  National Bankshares

Very good diversification

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

Pair Corralation between Bancolombia and National Bankshares

Considering the 90-day investment horizon Bancolombia SA ADR is expected to generate 1.39 times more return on investment than National Bankshares. However, Bancolombia is 1.39 times more volatile than National Bankshares. It trades about 0.11 of its potential returns per unit of risk. National Bankshares is currently generating about -0.09 per unit of risk. If you would invest  3,897  in Bancolombia SA ADR on December 4, 2024 and sell it today you would earn a total of  140.00  from holding Bancolombia SA ADR or generate 3.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Bancolombia SA ADR  vs.  National Bankshares

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 20 (%) 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.

National Bankshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days National Bankshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Bancolombia and National Bankshares

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

The idea behind Bancolombia SA ADR and National Bankshares 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.

Check out your portfolio center.

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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.