Correlation Between Intercorp Financial and Foreign Trade

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

By analyzing existing cross correlation between Intercorp Financial Services and Foreign Trade Bank, you can compare the effects of market volatilities on Intercorp Financial and Foreign Trade 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 Intercorp Financial with a short position of Foreign Trade. Check out your portfolio center. Please also check ongoing floating volatility patterns of Intercorp Financial and Foreign Trade.

Diversification Opportunities for Intercorp Financial and Foreign Trade

0.81

Correlation Coefficient

Intercorp Financial  Foreign Trade

Very poor diversification

The 3 months correlation between Intercorp and Foreign is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Intercorp Financial Services and Foreign Trade Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foreign Trade Bank and Intercorp 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 Intercorp Financial Services are associated (or correlated) with Foreign Trade. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foreign Trade Bank has no effect on the direction of Intercorp Financial i.e., Intercorp Financial and Foreign Trade go up and down completely randomly.

Pair Corralation between Intercorp Financial and Foreign Trade

Considering the 90-day investment horizon Intercorp Financial is expected to generate 2.56 times less return on investment than Foreign Trade. But when comparing it to its historical volatility, Intercorp Financial Services is 1.01 times less risky than Foreign Trade. It trades about 0.05 of its potential returns per unit of risk. Foreign Trade Bank is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,441  in Foreign Trade Bank on September 20, 2024 and sell it today you would earn a total of  2,131  from holding Foreign Trade Bank or generate 147.88% return on investment over 90 days.

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

Intercorp Financial Services  vs.  Foreign Trade Bank

Intercorp Financial

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Intercorp Financial Services are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent technical and fundamental indicators, Intercorp Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Foreign Trade Bank

Risk-Adjusted Performance

10 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Foreign Trade Bank are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady essential indicators, Foreign Trade may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Intercorp Financial and Foreign Trade

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

The idea behind Intercorp Financial Services and Foreign Trade Bank 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.