Correlation Between Grupo Financiero and Grupo Aval

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

By analyzing existing cross correlation between Grupo Financiero Galicia and Grupo Aval, you can compare the effects of market volatilities on Grupo Financiero and Grupo Aval 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 Grupo Financiero with a short position of Grupo Aval. Check out your portfolio center. Please also check ongoing floating volatility patterns of Grupo Financiero and Grupo Aval.

Diversification Opportunities for Grupo Financiero and Grupo Aval

0.7

Correlation Coefficient

Grupo Financiero  Grupo Aval

Poor diversification

The 3 months correlation between Grupo and Grupo is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Grupo Financiero Galicia and Grupo Aval in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grupo Aval and Grupo Financiero 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 Grupo Financiero Galicia are associated (or correlated) with Grupo Aval. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grupo Aval has no effect on the direction of Grupo Financiero i.e., Grupo Financiero and Grupo Aval go up and down completely randomly.

Pair Corralation between Grupo Financiero and Grupo Aval

Given the investment horizon of 90 days Grupo Financiero is expected to generate 1.66 times less return on investment than Grupo Aval. In addition to that, Grupo Financiero is 2.45 times more volatile than Grupo Aval. It trades about 0.1 of its total potential returns per unit of risk. Grupo Aval is currently generating about 0.4 per unit of volatility. If you would invest  203.00  in Grupo Aval on October 21, 2024 and sell it today you would earn a total of  22.00  from holding Grupo Aval or generate 10.84% return on investment over 90 days.

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

Grupo Financiero Galicia  vs.  Grupo Aval

Grupo Financiero Galicia

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Grupo Financiero Galicia are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite abnormal basic indicators, Grupo Financiero disclosed solid returns over the last few months and may actually be approaching a breakup point.

Grupo Aval

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Grupo Aval are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, Grupo Aval may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Grupo Financiero and Grupo Aval

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

The idea behind Grupo Financiero Galicia and Grupo Aval 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.