Correlation Between Shinhan Financial and Bancolombia

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

By analyzing existing cross correlation between Shinhan Financial Group and Bancolombia SA ADR, you can compare the effects of market volatilities on Shinhan Financial and Bancolombia 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 Shinhan Financial with a short position of Bancolombia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shinhan Financial and Bancolombia.

Diversification Opportunities for Shinhan Financial and Bancolombia

-0.4

Correlation Coefficient

Shinhan Financial  Bancolombia

Very good diversification

The 3 months correlation between Shinhan and Bancolombia is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Shinhan Financial Group and Bancolombia SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bancolombia SA ADR and Shinhan Financial 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 Shinhan Financial Group are associated (or correlated) with Bancolombia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bancolombia SA ADR has no effect on the direction of Shinhan Financial i.e., Shinhan Financial and Bancolombia go up and down completely randomly.

Pair Corralation between Shinhan Financial and Bancolombia

Considering the 90-day investment horizon Shinhan Financial Group is expected to under-perform the Bancolombia. But the stock apears to be less risky and, when comparing its historical volatility, Shinhan Financial Group is 1.35 times less risky than Bancolombia. The stock trades about -0.13 of its potential returns per unit of risk. The Bancolombia SA ADR is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  3,205  in Bancolombia SA ADR on December 10, 2024 and sell it today you would earn a total of  959.00  from holding Bancolombia SA ADR or generate 29.92% return on investment over 90 days.

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

Shinhan Financial Group  vs.  Bancolombia SA ADR

Shinhan Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shinhan Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Bancolombia SA ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bancolombia SA ADR are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent forward indicators, Bancolombia sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shinhan Financial and Bancolombia

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

The idea behind Shinhan Financial Group and Bancolombia SA ADR 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.