Correlation Between Banco Do and Touchmark Bancshares

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

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

Diversification Opportunities for Banco Do and Touchmark Bancshares

0.67

Correlation Coefficient

Banco Do  Touchmark Bancshares

Poor diversification

The 3 months correlation between Banco and Touchmark is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Banco do Brasil and Touchmark Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Touchmark Bancshares and Banco Do 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 do Brasil are associated (or correlated) with Touchmark Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Touchmark Bancshares has no effect on the direction of Banco Do i.e., Banco Do and Touchmark Bancshares go up and down completely randomly.

Pair Corralation between Banco Do and Touchmark Bancshares

Assuming the 90 days trading horizon Banco do Brasil is expected to under-perform the Touchmark Bancshares. But the stock apears to be less risky and, when comparing its historical volatility, Banco do Brasil is 1.22 times less risky than Touchmark Bancshares. The stock trades about -0.18 of its potential returns per unit of risk. The Touchmark Bancshares is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  904.00  in Touchmark Bancshares on September 18, 2024 and sell it today you would lose (97.00) from holding Touchmark Bancshares or give up 10.73% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Banco do Brasil  vs.  Touchmark Bancshares

Banco do Brasil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Banco do 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 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.

Touchmark Bancshares

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Touchmark Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Banco Do and Touchmark Bancshares

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

The idea behind Banco do Brasil and Touchmark Bancshares 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.