Correlation Between Banco Do and Fundo Investimento

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Can any of the company-specific risk be diversified away by investing in both Banco Do and Fundo Investimento 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 Banco Do and Fundo Investimento into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Banco Do Brasil and Fundo Investimento Imobiliario, you can compare the effects of market volatilities on Banco Do and Fundo Investimento 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 Banco Do with a short position of Fundo Investimento. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banco Do and Fundo Investimento.

Diversification Opportunities for Banco Do and Fundo Investimento

0.74
  Correlation Coefficient

Poor diversification

The 3 months correlation between Banco and Fundo is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Banco Do Brasil and Fundo Investimento Imobiliario in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fundo Investimento and Banco Do 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 Banco Do Brasil are associated (or correlated) with Fundo Investimento. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fundo Investimento has no effect on the direction of Banco Do i.e., Banco Do and Fundo Investimento go up and down completely randomly.

Pair Corralation between Banco Do and Fundo Investimento

Assuming the 90 days trading horizon Banco Do Brasil is expected to generate 1.76 times more return on investment than Fundo Investimento. However, Banco Do is 1.76 times more volatile than Fundo Investimento Imobiliario. It trades about 0.07 of its potential returns per unit of risk. Fundo Investimento Imobiliario is currently generating about 0.04 per unit of risk. If you would invest  2,607  in Banco Do Brasil on September 4, 2022 and sell it today you would earn a total of  996.00  from holding Banco Do Brasil or generate 38.2% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy99.63%
ValuesDaily Returns

Banco Do Brasil  vs.  Fundo Investimento Imobiliario

 Performance (%) 
       Timeline  
Banco Do Brasil 
Banco Performance
0 of 100
Over the last 90 days Banco Do Brasil has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Banco Price Channel

Fundo Investimento 
Fundo Performance
0 of 100
Over the last 90 days Fundo Investimento Imobiliario has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Fundo Price Channel

Banco Do and Fundo Investimento Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Banco Do and Fundo Investimento

The main advantage of trading using opposite Banco Do and Fundo Investimento positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Banco Do position performs unexpectedly, Fundo Investimento 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 Fundo Investimento will offset losses from the drop in Fundo Investimento's long position.
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The idea behind Banco Do Brasil and Fundo Investimento Imobiliario 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.
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Fundo Investimento as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Fundo Investimento's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Fundo Investimento's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Fundo Investimento Imobiliario.
Check out your portfolio center. 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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