Correlation Between Banco Do and Woodlands Financial

Can any of the company-specific risk be diversified away by investing in both Banco Do and Woodlands Financial 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 Woodlands Financial 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 Woodlands Financial Services, you can compare the effects of market volatilities on Banco Do and Woodlands Financial 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 Woodlands Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banco Do and Woodlands Financial.

Diversification Opportunities for Banco Do and Woodlands Financial

-0.48

Correlation Coefficient

Banco Do  Woodlands Financial

Very good diversification

The 3 months correlation between Banco and Woodlands is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Banco do Brasil and Woodlands Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Woodlands Financial 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 Woodlands Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Woodlands Financial has no effect on the direction of Banco Do i.e., Banco Do and Woodlands Financial go up and down completely randomly.

Pair Corralation between Banco Do and Woodlands Financial

Assuming the 90 days trading horizon Banco do Brasil is expected to under-perform the Woodlands Financial. In addition to that, Banco Do is 1.01 times more volatile than Woodlands Financial Services. It trades about -0.12 of its total potential returns per unit of risk. Woodlands Financial Services is currently generating about 0.06 per unit of volatility. If you would invest  1,986  in Woodlands Financial Services on September 5, 2024 and sell it today you would earn a total of  29.00  from holding Woodlands Financial Services or generate 1.46% return on investment over 90 days.

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

Banco do Brasil  vs.  Woodlands Financial Services

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.

Woodlands Financial

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Woodlands Financial Services are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Woodlands Financial is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Banco Do and Woodlands Financial

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

The idea behind Banco do Brasil and Woodlands Financial Services 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.