Correlation Between Itau Unibanco and Aozora Bank

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

By analyzing existing cross correlation between Itau Unibanco Banco and Aozora Bank Ltd, you can compare the effects of market volatilities on Itau Unibanco and Aozora Bank 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 Itau Unibanco with a short position of Aozora Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Itau Unibanco and Aozora Bank.

Diversification Opportunities for Itau Unibanco and Aozora Bank

0.23

Correlation Coefficient

Itau Unibanco  Aozora Bank

Modest diversification

The 3 months correlation between Itau and Aozora is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Itau Unibanco Banco and Aozora Bank Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aozora Bank and Itau Unibanco 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 Itau Unibanco Banco are associated (or correlated) with Aozora Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aozora Bank has no effect on the direction of Itau Unibanco i.e., Itau Unibanco and Aozora Bank go up and down completely randomly.

Pair Corralation between Itau Unibanco and Aozora Bank

Given the investment horizon of 90 days Itau Unibanco Banco is expected to generate 0.73 times more return on investment than Aozora Bank. However, Itau Unibanco Banco is 1.36 times less risky than Aozora Bank. It trades about -0.17 of its potential returns per unit of risk. Aozora Bank Ltd is currently generating about -0.23 per unit of risk. If you would invest  538.00  in Itau Unibanco Banco on October 13, 2024 and sell it today you would lose (34.00) from holding Itau Unibanco Banco or give up 6.32% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.0%
Values	Daily Returns

Itau Unibanco Banco  vs.  Aozora Bank Ltd

Itau Unibanco Banco

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Itau Unibanco Banco has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Aozora Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aozora Bank Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Itau Unibanco and Aozora Bank

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

The idea behind Itau Unibanco Banco and Aozora Bank Ltd 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.