Correlation Between Banco Bradesco and First Community

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

By analyzing existing cross correlation between Banco Bradesco SA and First Community, you can compare the effects of market volatilities on Banco Bradesco and First Community 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 Bradesco with a short position of First Community. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banco Bradesco and First Community.

Diversification Opportunities for Banco Bradesco and First Community

-0.91

Correlation Coefficient

Banco Bradesco  First Community

Pay attention - limited upside

The 3 months correlation between Banco and First is -0.91. Overlapping area represents the amount of risk that can be diversified away by holding Banco Bradesco SA and First Community in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Community and Banco Bradesco 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 Bradesco SA are associated (or correlated) with First Community. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Community has no effect on the direction of Banco Bradesco i.e., Banco Bradesco and First Community go up and down completely randomly.

Pair Corralation between Banco Bradesco and First Community

Considering the 90-day investment horizon Banco Bradesco SA is expected to under-perform the First Community. In addition to that, Banco Bradesco is 2.13 times more volatile than First Community. It trades about -0.19 of its total potential returns per unit of risk. First Community is currently generating about 0.12 per unit of volatility. If you would invest  2,499  in First Community on September 12, 2024 and sell it today you would earn a total of  69.00  from holding First Community or generate 2.76% return on investment over 90 days.

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

Banco Bradesco SA  vs.  First Community

Banco Bradesco SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Banco Bradesco SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's fundamental drivers remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

First Community

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Community are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady fundamental indicators, First Community displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Banco Bradesco and First Community

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

The idea behind Banco Bradesco SA and First Community 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.