Correlation Between United States and BBVA Banco

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

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

Diversification Opportunities for United States and BBVA Banco

-0.69

Correlation Coefficient

United States  BBVA Banco

Excellent diversification

The 3 months correlation between United and BBVA is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel 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 United States 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 United States Steel 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 United States i.e., United States and BBVA Banco go up and down completely randomly.

Pair Corralation between United States and BBVA Banco

Given the investment horizon of 90 days United States Steel is expected to under-perform the BBVA Banco. But the stock apears to be less risky and, when comparing its historical volatility, United States Steel is 1.14 times less risky than BBVA Banco. The stock trades about -0.15 of its potential returns per unit of risk. The BBVA Banco Frances is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  220,300  in BBVA Banco Frances on January 29, 2024 and sell it today you would earn a total of  116,025  from holding BBVA Banco Frances or generate 52.67% return on investment over 90 days.

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

United States Steel  vs.  BBVA Banco Frances

United States Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United States Steel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental drivers remain somewhat strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

BBVA Banco Frances

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BBVA Banco Frances are ranked lower than 11 (%) 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 United States and BBVA Banco

The main advantage of trading using opposite United States and BBVA Banco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United States 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 United States Steel 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.