Correlation Between Exchange Bankshares and Bancolombia

Can any of the company-specific risk be diversified away by investing in both Exchange Bankshares and Bancolombia 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 Exchange Bankshares and Bancolombia into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Exchange Bankshares and Bancolombia SA ADR, you can compare the effects of market volatilities on Exchange Bankshares and Bancolombia 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 Exchange Bankshares with a short position of Bancolombia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exchange Bankshares and Bancolombia.

Diversification Opportunities for Exchange Bankshares and Bancolombia

-0.22

Correlation Coefficient

Exchange Bankshares  Bancolombia

Very good diversification

The 3 months correlation between Exchange and Bancolombia is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Exchange Bankshares and Bancolombia SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bancolombia SA ADR and Exchange Bankshares 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 Exchange Bankshares are associated (or correlated) with Bancolombia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bancolombia SA ADR has no effect on the direction of Exchange Bankshares i.e., Exchange Bankshares and Bancolombia go up and down completely randomly.

Pair Corralation between Exchange Bankshares and Bancolombia

Given the investment horizon of 90 days Exchange Bankshares is expected to generate 4.99 times less return on investment than Bancolombia. But when comparing it to its historical volatility, Exchange Bankshares is 10.06 times less risky than Bancolombia. It trades about 0.58 of its potential returns per unit of risk. Bancolombia SA ADR is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  3,137  in Bancolombia SA ADR on December 23, 2024 and sell it today you would earn a total of  1,131  from holding Bancolombia SA ADR or generate 36.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	4.92%
Values	Daily Returns

Exchange Bankshares  vs.  Bancolombia SA ADR

Exchange Bankshares

Risk-Adjusted Performance

Excellent

Over the last 90 days Exchange Bankshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly weak fundamental indicators, Exchange Bankshares may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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 22 (%) 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.

Pair Trading with Exchange Bankshares and Bancolombia

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

The idea behind Exchange Bankshares and Bancolombia SA ADR 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.