Correlation Between Banco Bradesco and BDO Unibank

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

Diversification Opportunities for Banco Bradesco and BDO Unibank

0.63

Correlation Coefficient

Banco Bradesco  BDO Unibank

Poor diversification

The 3 months correlation between Banco and BDO is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Banco Bradesco SA and BDO Unibank ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BDO Unibank ADR 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 BDO Unibank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BDO Unibank ADR has no effect on the direction of Banco Bradesco i.e., Banco Bradesco and BDO Unibank go up and down completely randomly.

Pair Corralation between Banco Bradesco and BDO Unibank

Assuming the 90 days trading horizon Banco Bradesco SA is expected to under-perform the BDO Unibank. But the preferred stock apears to be less risky and, when comparing its historical volatility, Banco Bradesco SA is 1.58 times less risky than BDO Unibank. The preferred stock trades about -0.23 of its potential returns per unit of risk. The BDO Unibank ADR is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  2,844  in BDO Unibank ADR on September 14, 2024 and sell it today you would lose (294.00) from holding BDO Unibank ADR or give up 10.34% of portfolio value over 90 days.

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

Banco Bradesco SA  vs.  BDO Unibank ADR

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 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.

BDO Unibank ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BDO Unibank ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Banco Bradesco and BDO Unibank

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

The idea behind Banco Bradesco SA and BDO Unibank ADR 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.