Correlation Between Banco De and Eastern Bankshares

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

Diversification Opportunities for Banco De and Eastern Bankshares

-0.79

Correlation Coefficient

Banco De  Eastern Bankshares

Pay attention - limited upside

The 3 months correlation between Banco and Eastern is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Banco De Chile and Eastern Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern Bankshares 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 Eastern Bankshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern Bankshares has no effect on the direction of Banco De i.e., Banco De and Eastern Bankshares go up and down completely randomly.

Pair Corralation between Banco De and Eastern Bankshares

Considering the 90-day investment horizon Banco De Chile is expected to under-perform the Eastern Bankshares. But the stock apears to be less risky and, when comparing its historical volatility, Banco De Chile is 2.01 times less risky than Eastern Bankshares. The stock trades about -0.04 of its potential returns per unit of risk. The Eastern Bankshares is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,653  in Eastern Bankshares on September 17, 2024 and sell it today you would earn a total of  142.00  from holding Eastern Bankshares or generate 8.59% 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.  Eastern Bankshares

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.

Eastern Bankshares

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Eastern Bankshares are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental drivers, Eastern Bankshares may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Banco De and Eastern Bankshares

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

The idea behind Banco De Chile and Eastern Bankshares 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.