Correlation Between Banco De and Foreign Trade

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

By analyzing existing cross correlation between Banco De Chile and Foreign Trade Bank, you can compare the effects of market volatilities on Banco De and Foreign Trade 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 Foreign Trade. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banco De and Foreign Trade.

Diversification Opportunities for Banco De and Foreign Trade

-0.66

Correlation Coefficient

Banco De  Foreign Trade

Excellent diversification

The 3 months correlation between Banco and Foreign is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Banco De Chile and Foreign Trade Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foreign Trade Bank 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 Chile are associated (or correlated) with Foreign Trade. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foreign Trade Bank has no effect on the direction of Banco De i.e., Banco De and Foreign Trade go up and down completely randomly.

Pair Corralation between Banco De and Foreign Trade

Considering the 90-day investment horizon Banco De Chile is expected to under-perform the Foreign Trade. But the stock apears to be less risky and, when comparing its historical volatility, Banco De Chile is 1.16 times less risky than Foreign Trade. The stock trades about -0.07 of its potential returns per unit of risk. The Foreign Trade Bank is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  2,976  in Foreign Trade Bank on September 12, 2024 and sell it today you would earn a total of  551.00  from holding Foreign Trade Bank or generate 18.51% return on investment over 90 days.

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

Banco De Chile  vs.  Foreign Trade Bank

Banco De Chile

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Banco De Chile has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Banco De is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Foreign Trade Bank

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Foreign Trade Bank are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady essential indicators, Foreign Trade showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Banco De and Foreign Trade

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

The idea behind Banco De Chile and Foreign Trade Bank 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.