Correlation Between Heritage Financial and Bancolombia

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

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

Diversification Opportunities for Heritage Financial and Bancolombia

0.61

Correlation Coefficient

Heritage Financial  Bancolombia

Poor diversification

The 3 months correlation between Heritage and Bancolombia is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Heritage Financial 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 Heritage Financial 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 Heritage Financial 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 Heritage Financial i.e., Heritage Financial and Bancolombia go up and down completely randomly.

Pair Corralation between Heritage Financial and Bancolombia

Given the investment horizon of 90 days Heritage Financial is expected to generate 35.66 times less return on investment than Bancolombia. But when comparing it to its historical volatility, Heritage Financial is 1.34 times less risky than Bancolombia. It trades about 0.01 of its potential returns per unit of risk. Bancolombia SA ADR is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  3,120  in Bancolombia SA ADR on September 14, 2024 and sell it today you would earn a total of  194.00  from holding Bancolombia SA ADR or generate 6.22% return on investment over 90 days.

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

Heritage Financial  vs.  Bancolombia SA ADR

Heritage Financial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Heritage Financial are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Heritage Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Bancolombia SA ADR

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bancolombia SA ADR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent forward indicators, Bancolombia may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Heritage Financial and Bancolombia

The main advantage of trading using opposite Heritage Financial and Bancolombia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Heritage Financial 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 Heritage Financial 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.