Correlation Between Foreign Trade and Grupo Aval

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

By analyzing existing cross correlation between Foreign Trade Bank and Grupo Aval, you can compare the effects of market volatilities on Foreign Trade and Grupo Aval 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 Foreign Trade with a short position of Grupo Aval. Check out your portfolio center. Please also check ongoing floating volatility patterns of Foreign Trade and Grupo Aval.

Diversification Opportunities for Foreign Trade and Grupo Aval

0.37

Correlation Coefficient

Foreign Trade  Grupo Aval

Weak diversification

The 3 months correlation between Foreign and Grupo is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Foreign Trade Bank and Grupo Aval in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grupo Aval and Foreign Trade 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 Foreign Trade Bank are associated (or correlated) with Grupo Aval. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grupo Aval has no effect on the direction of Foreign Trade i.e., Foreign Trade and Grupo Aval go up and down completely randomly.

Pair Corralation between Foreign Trade and Grupo Aval

Considering the 90-day investment horizon Foreign Trade Bank is expected to generate 0.95 times more return on investment than Grupo Aval. However, Foreign Trade Bank is 1.06 times less risky than Grupo Aval. It trades about 0.13 of its potential returns per unit of risk. Grupo Aval is currently generating about 0.05 per unit of risk. If you would invest  3,045  in Foreign Trade Bank on August 31, 2024 and sell it today you would earn a total of  362.00  from holding Foreign Trade Bank or generate 11.89% return on investment over 90 days.

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

Foreign Trade Bank  vs.  Grupo Aval

Foreign Trade Bank

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Foreign Trade Bank are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady essential indicators, Foreign Trade may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Grupo Aval

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Grupo Aval are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Grupo Aval is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Foreign Trade and Grupo Aval

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

The idea behind Foreign Trade Bank and Grupo Aval 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.