Correlation Between CF Bankshares and Bancolombia

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

By analyzing existing cross correlation between CF Bankshares and Bancolombia SA ADR, you can compare the effects of market volatilities on CF Bankshares and Bancolombia 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 CF Bankshares with a short position of Bancolombia. Check out your portfolio center. Please also check ongoing floating volatility patterns of CF Bankshares and Bancolombia.

Diversification Opportunities for CF Bankshares and Bancolombia

0.6

Correlation Coefficient

CF Bankshares  Bancolombia

Poor diversification

The 3 months correlation between CFBK and Bancolombia is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding CF Bankshares and Bancolombia SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bancolombia SA ADR and CF Bankshares 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 CF Bankshares are associated (or correlated) with Bancolombia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bancolombia SA ADR has no effect on the direction of CF Bankshares i.e., CF Bankshares and Bancolombia go up and down completely randomly.

Pair Corralation between CF Bankshares and Bancolombia

Given the investment horizon of 90 days CF Bankshares is expected to under-perform the Bancolombia. In addition to that, CF Bankshares is 1.24 times more volatile than Bancolombia SA ADR. It trades about -0.1 of its total potential returns per unit of risk. Bancolombia SA ADR is currently generating about 0.22 per unit of volatility. If you would invest  3,120  in Bancolombia SA ADR on September 14, 2024 and sell it today you would earn a total of  194.00  from holding Bancolombia SA ADR or generate 6.22% return on investment over 90 days.

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

CF Bankshares  vs.  Bancolombia SA ADR

CF Bankshares

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CF Bankshares are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady fundamental drivers, CF Bankshares disclosed solid returns over the last few months and may actually be approaching a breakup point.

Bancolombia SA ADR

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bancolombia SA ADR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent forward indicators, Bancolombia may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with CF Bankshares and Bancolombia

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

The idea behind CF Bankshares and Bancolombia SA 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.