Correlation Between Home Federal and Grupo Aval

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

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

Diversification Opportunities for Home Federal and Grupo Aval

0.1

Correlation Coefficient

Home Federal  Grupo Aval

Average diversification

The 3 months correlation between Home and Grupo is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Home Federal Bancorp and Grupo Aval in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grupo Aval and Home Federal 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 Home Federal Bancorp 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 Home Federal i.e., Home Federal and Grupo Aval go up and down completely randomly.

Pair Corralation between Home Federal and Grupo Aval

Given the investment horizon of 90 days Home Federal Bancorp is expected to under-perform the Grupo Aval. But the stock apears to be less risky and, when comparing its historical volatility, Home Federal Bancorp is 2.53 times less risky than Grupo Aval. The stock trades about -0.09 of its potential returns per unit of risk. The Grupo Aval is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  200.00  in Grupo Aval on September 12, 2024 and sell it today you would earn a total of  15.00  from holding Grupo Aval or generate 7.5% return on investment over 90 days.

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

Home Federal Bancorp  vs.  Grupo Aval

Home Federal Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Home Federal Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental drivers, Home Federal is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Grupo Aval

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Grupo Aval are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating basic indicators, Grupo Aval may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Home Federal and Grupo Aval

The main advantage of trading using opposite Home Federal and Grupo Aval positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Federal 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 Home Federal Bancorp 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.