Correlation Between Itau Unibanco and Foreign Trade

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

Diversification Opportunities for Itau Unibanco and Foreign Trade

-0.85

Correlation Coefficient

Itau Unibanco  Foreign Trade

Pay attention - limited upside

The 3 months correlation between Itau and Foreign is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding Itau Unibanco Banco 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 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 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 Itau Unibanco i.e., Itau Unibanco and Foreign Trade go up and down completely randomly.

Pair Corralation between Itau Unibanco and Foreign Trade

Given the investment horizon of 90 days Itau Unibanco is expected to generate 3.25 times less return on investment than Foreign Trade. In addition to that, Itau Unibanco is 1.14 times more volatile than Foreign Trade Bank. It trades about 0.03 of its total potential returns per unit of risk. Foreign Trade Bank is currently generating about 0.12 per unit of volatility. 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 Against
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Itau Unibanco Banco  vs.  Foreign Trade Bank

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 January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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 Itau Unibanco and Foreign Trade

The main advantage of trading using opposite Itau Unibanco and Foreign Trade positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Itau Unibanco 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 Itau Unibanco Banco 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.