Correlation Between Banco ABC and Companhia

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

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

Diversification Opportunities for Banco ABC and Companhia

0.77

Correlation Coefficient

Banco ABC  Companhia

Poor diversification

The 3 months correlation between Banco and Companhia is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Banco ABC Brasil and Companhia de Saneamento in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhia de Saneamento and Banco ABC 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 ABC Brasil are associated (or correlated) with Companhia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhia de Saneamento has no effect on the direction of Banco ABC i.e., Banco ABC and Companhia go up and down completely randomly.

Pair Corralation between Banco ABC and Companhia

Assuming the 90 days trading horizon Banco ABC is expected to generate 2.17 times less return on investment than Companhia. In addition to that, Banco ABC is 1.23 times more volatile than Companhia de Saneamento. It trades about 0.04 of its total potential returns per unit of risk. Companhia de Saneamento is currently generating about 0.1 per unit of volatility. If you would invest  1,543  in Companhia de Saneamento on September 3, 2024 and sell it today you would earn a total of  1,482  from holding Companhia de Saneamento or generate 96.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.6%
Values	Daily Returns

Banco ABC Brasil  vs.  Companhia de Saneamento

Banco ABC Brasil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Banco ABC Brasil has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Preferred Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Companhia de Saneamento

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Companhia de Saneamento are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Companhia is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Banco ABC and Companhia

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

The idea behind Banco ABC Brasil and Companhia de Saneamento 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 Global Correlations module to find global opportunities by holding instruments from different markets.