Correlation Between Itau Unibanco and 1st Colonial

Can any of the company-specific risk be diversified away by investing in both Itau Unibanco and 1st Colonial 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 1st Colonial 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 1st Colonial Bancorp, you can compare the effects of market volatilities on Itau Unibanco and 1st Colonial 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 1st Colonial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Itau Unibanco and 1st Colonial.

Diversification Opportunities for Itau Unibanco and 1st Colonial

0.51

Correlation Coefficient

Itau Unibanco  1st Colonial

Very weak diversification

The 3 months correlation between Itau and 1st is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Itau Unibanco Banco and 1st Colonial Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 1st Colonial Bancorp 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 1st Colonial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 1st Colonial Bancorp has no effect on the direction of Itau Unibanco i.e., Itau Unibanco and 1st Colonial go up and down completely randomly.

Pair Corralation between Itau Unibanco and 1st Colonial

Given the investment horizon of 90 days Itau Unibanco Banco is expected to under-perform the 1st Colonial. In addition to that, Itau Unibanco is 1.67 times more volatile than 1st Colonial Bancorp. It trades about -0.04 of its total potential returns per unit of risk. 1st Colonial Bancorp is currently generating about 0.08 per unit of volatility. If you would invest  1,210  in 1st Colonial Bancorp on October 3, 2024 and sell it today you would earn a total of  265.00  from holding 1st Colonial Bancorp or generate 21.9% return on investment over 90 days.

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

Itau Unibanco Banco  vs.  1st Colonial Bancorp

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.

1st Colonial Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days 1st Colonial Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 1st Colonial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Itau Unibanco and 1st Colonial

The main advantage of trading using opposite Itau Unibanco and 1st Colonial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Itau Unibanco position performs unexpectedly, 1st Colonial 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 1st Colonial will offset losses from the drop in 1st Colonial's long position.

The idea behind Itau Unibanco Banco and 1st Colonial Bancorp 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.