Correlation Between Intercorp Financial and Bancolombia

Can any of the company-specific risk be diversified away by investing in both Intercorp 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 Intercorp Financial and Bancolombia 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 Bancolombia SA ADR, you can compare the effects of market volatilities on Intercorp 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 Intercorp Financial with a short position of Bancolombia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Intercorp Financial and Bancolombia.

Diversification Opportunities for Intercorp Financial and Bancolombia

0.62

Correlation Coefficient

Intercorp Financial  Bancolombia

Poor diversification

The 3 months correlation between Intercorp and Bancolombia is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Intercorp Financial Services 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 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 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 Intercorp Financial i.e., Intercorp Financial and Bancolombia go up and down completely randomly.

Pair Corralation between Intercorp Financial and Bancolombia

Considering the 90-day investment horizon Intercorp Financial Services is expected to generate 1.11 times more return on investment than Bancolombia. However, Intercorp Financial is 1.11 times more volatile than Bancolombia SA ADR. It trades about 0.11 of its potential returns per unit of risk. Bancolombia SA ADR is currently generating about 0.07 per unit of risk. If you would invest  1,796  in Intercorp Financial Services on September 4, 2024 and sell it today you would earn a total of  1,023  from holding Intercorp Financial Services or generate 56.96% return on investment over 90 days.

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

Intercorp Financial Services  vs.  Bancolombia SA ADR

Intercorp Financial

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Intercorp Financial Services are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, Intercorp Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Bancolombia SA ADR

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bancolombia SA ADR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong forward indicators, Bancolombia is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Intercorp Financial and Bancolombia

The main advantage of trading using opposite Intercorp Financial and Bancolombia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Intercorp 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 Intercorp Financial Services 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.