Correlation Between Bancolombia and Sonoma Pharmaceuticals

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

Diversification Opportunities for Bancolombia and Sonoma Pharmaceuticals

0.17

Correlation Coefficient

Bancolombia  Sonoma Pharmaceuticals

Average diversification

The 3 months correlation between Bancolombia and Sonoma is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Bancolombia SA ADR and Sonoma Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonoma Pharmaceuticals 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 Sonoma Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonoma Pharmaceuticals has no effect on the direction of Bancolombia i.e., Bancolombia and Sonoma Pharmaceuticals go up and down completely randomly.

Pair Corralation between Bancolombia and Sonoma Pharmaceuticals

Considering the 90-day investment horizon Bancolombia SA ADR is expected to generate 0.23 times more return on investment than Sonoma Pharmaceuticals. However, Bancolombia SA ADR is 4.29 times less risky than Sonoma Pharmaceuticals. It trades about 0.3 of its potential returns per unit of risk. Sonoma Pharmaceuticals is currently generating about 0.01 per unit of risk. If you would invest  3,167  in Bancolombia SA ADR on December 30, 2024 and sell it today you would earn a total of  1,212  from holding Bancolombia SA ADR or generate 38.27% return on investment over 90 days.

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

Bancolombia SA ADR  vs.  Sonoma Pharmaceuticals

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 23 (%) 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.

Sonoma Pharmaceuticals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sonoma Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Sonoma Pharmaceuticals is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bancolombia and Sonoma Pharmaceuticals

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

The idea behind Bancolombia SA ADR and Sonoma Pharmaceuticals 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.