Correlation Between Societe Generale and Banco Do

Can any of the company-specific risk be diversified away by investing in both Societe Generale and Banco Do 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 Societe Generale and Banco Do into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Societe Generale ADR and Banco Do Brasil, you can compare the effects of market volatilities on Societe Generale and Banco Do 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 Societe Generale with a short position of Banco Do. Check out your portfolio center. Please also check ongoing floating volatility patterns of Societe Generale and Banco Do.

Diversification Opportunities for Societe Generale and Banco Do

0.82

Correlation Coefficient

Societe Generale  Banco Do

Very poor diversification

The 3 months correlation between Societe and Banco is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Societe Generale ADR and Banco Do Brasil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco Do Brasil and Societe Generale 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 Societe Generale ADR are associated (or correlated) with Banco Do. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banco Do Brasil has no effect on the direction of Societe Generale i.e., Societe Generale and Banco Do go up and down completely randomly.

Pair Corralation between Societe Generale and Banco Do

Assuming the 90 days horizon Societe Generale ADR is expected to generate 1.16 times more return on investment than Banco Do. However, Societe Generale is 1.16 times more volatile than Banco Do Brasil. It trades about 0.33 of its potential returns per unit of risk. Banco Do Brasil is currently generating about 0.18 per unit of risk. If you would invest  566.00  in Societe Generale ADR on December 29, 2024 and sell it today you would earn a total of  361.00  from holding Societe Generale ADR or generate 63.78% return on investment over 90 days.

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

Societe Generale ADR  vs.  Banco Do Brasil

Societe Generale ADR

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Societe Generale ADR are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, Societe Generale showed solid returns over the last few months and may actually be approaching a breakup point.

Banco Do Brasil

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Banco Do Brasil are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Banco Do showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Societe Generale and Banco Do

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

The idea behind Societe Generale ADR and Banco Do Brasil 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.