Correlation Between Bancolombia and Intercorp Financial

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

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

Diversification Opportunities for Bancolombia and Intercorp Financial

0.53

Correlation Coefficient

Bancolombia  Intercorp Financial

Very weak diversification

The 3 months correlation between Bancolombia and Intercorp is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Bancolombia SA ADR and Intercorp Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intercorp Financial and Bancolombia 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 Bancolombia SA ADR are associated (or correlated) with Intercorp Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intercorp Financial has no effect on the direction of Bancolombia i.e., Bancolombia and Intercorp Financial go up and down completely randomly.

Pair Corralation between Bancolombia and Intercorp Financial

Considering the 90-day investment horizon Bancolombia is expected to generate 3.22 times less return on investment than Intercorp Financial. In addition to that, Bancolombia is 1.26 times more volatile than Intercorp Financial Services. It trades about 0.03 of its total potential returns per unit of risk. Intercorp Financial Services is currently generating about 0.14 per unit of volatility. If you would invest  2,618  in Intercorp Financial Services on October 1, 2024 and sell it today you would earn a total of  290.00  from holding Intercorp Financial Services or generate 11.08% return on investment over 90 days.

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

Bancolombia SA ADR  vs.  Intercorp Financial Services

Bancolombia SA ADR

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bancolombia SA ADR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong forward indicators, Bancolombia is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Intercorp Financial

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Intercorp Financial Services are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent technical and fundamental indicators, Intercorp Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Bancolombia and Intercorp Financial

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

The idea behind Bancolombia SA ADR and Intercorp 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.