Correlation Between Grupo Financiero and Bancolombia

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

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

Diversification Opportunities for Grupo Financiero and Bancolombia

0.7

Correlation Coefficient

Grupo Financiero  Bancolombia

Poor diversification

The 3 months correlation between Grupo and Bancolombia is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Grupo Financiero Galicia 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 Grupo Financiero 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 Grupo Financiero Galicia 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 Grupo Financiero i.e., Grupo Financiero and Bancolombia go up and down completely randomly.

Pair Corralation between Grupo Financiero and Bancolombia

Given the investment horizon of 90 days Grupo Financiero Galicia is expected to generate 1.65 times more return on investment than Bancolombia. However, Grupo Financiero is 1.65 times more volatile than Bancolombia SA ADR. It trades about 0.22 of its potential returns per unit of risk. Bancolombia SA ADR is currently generating about 0.08 per unit of risk. If you would invest  4,433  in Grupo Financiero Galicia on September 16, 2024 and sell it today you would earn a total of  1,799  from holding Grupo Financiero Galicia or generate 40.58% return on investment over 90 days.

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

Grupo Financiero Galicia  vs.  Bancolombia SA ADR

Grupo Financiero Galicia

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Grupo Financiero Galicia are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Grupo Financiero 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 weak forward indicators, Bancolombia may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Grupo Financiero and Bancolombia

The main advantage of trading using opposite Grupo Financiero and Bancolombia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Grupo Financiero 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 Grupo Financiero Galicia 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.