Correlation Between Transportadora and BBVA Banco

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

By analyzing existing cross correlation between Transportadora de Gas and BBVA Banco Frances, you can compare the effects of market volatilities on Transportadora and BBVA Banco 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 Transportadora with a short position of BBVA Banco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transportadora and BBVA Banco.

Diversification Opportunities for Transportadora and BBVA Banco

0.9

Correlation Coefficient

Transportadora  BBVA Banco

Almost no diversification

The 3 months correlation between Transportadora and BBVA is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Transportadora de Gas and BBVA Banco Frances in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BBVA Banco Frances and Transportadora 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 Transportadora de Gas are associated (or correlated) with BBVA Banco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BBVA Banco Frances has no effect on the direction of Transportadora i.e., Transportadora and BBVA Banco go up and down completely randomly.

Pair Corralation between Transportadora and BBVA Banco

Assuming the 90 days trading horizon Transportadora de Gas is expected to generate 0.81 times more return on investment than BBVA Banco. However, Transportadora de Gas is 1.23 times less risky than BBVA Banco. It trades about 0.45 of its potential returns per unit of risk. BBVA Banco Frances is currently generating about 0.22 per unit of risk. If you would invest  519,000  in Transportadora de Gas on August 30, 2024 and sell it today you would earn a total of  130,000  from holding Transportadora de Gas or generate 25.05% return on investment over 90 days.

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

Transportadora de Gas  vs.  BBVA Banco Frances

Transportadora de Gas

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Transportadora de Gas are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Transportadora sustained solid returns over the last few months and may actually be approaching a breakup point.

BBVA Banco Frances

Risk-Adjusted Performance

14 of 100

Good

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

Pair Trading with Transportadora and BBVA Banco

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

The idea behind Transportadora de Gas and BBVA Banco Frances 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.