Correlation Between Banco Alfa and Banco Do

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

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

Diversification Opportunities for Banco Alfa and Banco Do

0.18

Correlation Coefficient

Banco Alfa  Banco Do

Average diversification

The 3 months correlation between Banco and Banco is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Banco Alfa de 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 Banco Alfa 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 Alfa de 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 Banco Alfa i.e., Banco Alfa and Banco Do go up and down completely randomly.

Pair Corralation between Banco Alfa and Banco Do

Assuming the 90 days trading horizon Banco Alfa is expected to generate 2.02 times less return on investment than Banco Do. But when comparing it to its historical volatility, Banco Alfa de is 2.72 times less risky than Banco Do. It trades about 0.07 of its potential returns per unit of risk. Banco do Brasil is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,021  in Banco do Brasil on February 16, 2024 and sell it today you would earn a total of  1,744  from holding Banco do Brasil or generate 170.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	97.66%
Values	Daily Returns

Banco Alfa de  vs.  Banco do Brasil

Banco Alfa de

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Banco Alfa de are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Banco Alfa unveiled solid returns over the last few months and may actually be approaching a breakup point.

Banco do Brasil

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Banco do Brasil are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Banco Do is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Banco Alfa and Banco Do

The main advantage of trading using opposite Banco Alfa and Banco Do positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Banco Alfa 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 Banco Alfa de 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.

Check out your portfolio center.

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 Equity Valuation module to check real value of public entities based on technical and fundamental data.