Correlation Between First Bancorp and Banco Macro

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

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

Diversification Opportunities for First Bancorp and Banco Macro

-0.59

Correlation Coefficient

First Bancorp  Banco Macro

Excellent diversification

The 3 months correlation between First and Banco is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding First Bancorp and Banco Macro SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco Macro SA and First Bancorp 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 First Bancorp are associated (or correlated) with Banco Macro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banco Macro SA has no effect on the direction of First Bancorp i.e., First Bancorp and Banco Macro go up and down completely randomly.

Pair Corralation between First Bancorp and Banco Macro

Given the investment horizon of 90 days First Bancorp is expected to under-perform the Banco Macro. But the stock apears to be less risky and, when comparing its historical volatility, First Bancorp is 2.0 times less risky than Banco Macro. The stock trades about -0.01 of its potential returns per unit of risk. The Banco Macro SA is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,222  in Banco Macro SA on January 25, 2024 and sell it today you would earn a total of  3,985  from holding Banco Macro SA or generate 326.1% return on investment over 90 days.

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

First Bancorp  vs.  Banco Macro SA

First Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's essential indicators remain rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Banco Macro SA

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Banco Macro SA are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent primary indicators, Banco Macro sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Bancorp and Banco Macro

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

The idea behind First Bancorp and Banco Macro SA 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.