Correlation Between Banco De and Transportadora

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

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

Diversification Opportunities for Banco De and Transportadora

0.78

Correlation Coefficient

Banco De  Transportadora

Poor diversification

The 3 months correlation between Banco and Transportadora is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Banco de Valores and Transportadora de Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transportadora de Gas and Banco De 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 Banco de Valores are associated (or correlated) with Transportadora. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transportadora de Gas has no effect on the direction of Banco De i.e., Banco De and Transportadora go up and down completely randomly.

Pair Corralation between Banco De and Transportadora

Assuming the 90 days trading horizon Banco de Valores is expected to under-perform the Transportadora. But the stock apears to be less risky and, when comparing its historical volatility, Banco de Valores is 2.13 times less risky than Transportadora. The stock trades about -0.02 of its potential returns per unit of risk. The Transportadora de Gas is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  628,000  in Transportadora de Gas on November 19, 2024 and sell it today you would earn a total of  34,000  from holding Transportadora de Gas or generate 5.41% return on investment over 90 days.

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

Banco de Valores  vs.  Transportadora de Gas

Banco de Valores

Risk-Adjusted Performance

Very Weak

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

Transportadora de Gas

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Transportadora de Gas are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Transportadora may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Banco De and Transportadora

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

The idea behind Banco de Valores and Transportadora de Gas 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.