Correlation Between Itau Unibanco and Banco Bradesco

Can any of the company-specific risk be diversified away by investing in both Itau Unibanco and Banco Bradesco 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 Banco Bradesco 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 Banco Bradesco SA, you can compare the effects of market volatilities on Itau Unibanco and Banco Bradesco 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 Banco Bradesco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Itau Unibanco and Banco Bradesco.

Diversification Opportunities for Itau Unibanco and Banco Bradesco

0.91

Correlation Coefficient

Itau Unibanco  Banco Bradesco

Almost no diversification

The 3 months correlation between Itau and Banco is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Itau Unibanco Banco and Banco Bradesco SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco Bradesco SA 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 Banco Bradesco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banco Bradesco SA has no effect on the direction of Itau Unibanco i.e., Itau Unibanco and Banco Bradesco go up and down completely randomly.

Pair Corralation between Itau Unibanco and Banco Bradesco

Given the investment horizon of 90 days Itau Unibanco Banco is expected to generate 0.77 times more return on investment than Banco Bradesco. However, Itau Unibanco Banco is 1.3 times less risky than Banco Bradesco. It trades about 0.28 of its potential returns per unit of risk. Banco Bradesco SA is currently generating about 0.18 per unit of risk. If you would invest  425.00  in Itau Unibanco Banco on December 27, 2024 and sell it today you would earn a total of  137.00  from holding Itau Unibanco Banco or generate 32.24% return on investment over 90 days.

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

Itau Unibanco Banco  vs.  Banco Bradesco SA

Itau Unibanco Banco

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Itau Unibanco Banco are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Itau Unibanco sustained solid returns over the last few months and may actually be approaching a breakup point.

Banco Bradesco SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Banco Bradesco SA are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental drivers, Banco Bradesco exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Itau Unibanco and Banco Bradesco

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

The idea behind Itau Unibanco Banco and Banco Bradesco SA 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.