Correlation Between Itau Unibanco and US Bancorp

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

Diversification Opportunities for Itau Unibanco and US Bancorp

0.77

Correlation Coefficient

Itau Unibanco  US Bancorp

Poor diversification

The 3 months correlation between Itau and USB-PP is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Itau Unibanco Banco and US Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US 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 US Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp has no effect on the direction of Itau Unibanco i.e., Itau Unibanco and US Bancorp go up and down completely randomly.

Pair Corralation between Itau Unibanco and US Bancorp

Given the investment horizon of 90 days Itau Unibanco Banco is expected to under-perform the US Bancorp. In addition to that, Itau Unibanco is 2.38 times more volatile than US Bancorp. It trades about -0.21 of its total potential returns per unit of risk. US Bancorp is currently generating about -0.26 per unit of volatility. If you would invest  2,447  in US Bancorp on October 12, 2024 and sell it today you would lose (104.00) from holding US Bancorp or give up 4.25% of portfolio value over 90 days.

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

Itau Unibanco Banco  vs.  US 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.

US Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days US Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, US Bancorp is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Itau Unibanco and US Bancorp

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

The idea behind Itau Unibanco Banco and US 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.