Correlation Between Postal Savings and Banco Do

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

By analyzing existing cross correlation between Postal Savings Bank and Banco do Brasil, you can compare the effects of market volatilities on Postal Savings and Banco Do 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 Postal Savings with a short position of Banco Do. Check out your portfolio center. Please also check ongoing floating volatility patterns of Postal Savings and Banco Do.

Diversification Opportunities for Postal Savings and Banco Do

0.73

Correlation Coefficient

Postal Savings  Banco Do

Poor diversification

The 3 months correlation between Postal and Banco is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Postal Savings Bank and Banco do Brasil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco do Brasil and Postal Savings 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 Postal Savings Bank are associated (or correlated) with Banco Do. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banco do Brasil has no effect on the direction of Postal Savings i.e., Postal Savings and Banco Do go up and down completely randomly.

Pair Corralation between Postal Savings and Banco Do

Assuming the 90 days horizon Postal Savings Bank is expected to under-perform the Banco Do. In addition to that, Postal Savings is 1.52 times more volatile than Banco do Brasil. It trades about -0.02 of its total potential returns per unit of risk. Banco do Brasil is currently generating about 0.17 per unit of volatility. If you would invest  1,573  in Banco do Brasil on January 26, 2024 and sell it today you would earn a total of  1,177  from holding Banco do Brasil or generate 74.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.19%
Values	Daily Returns

Postal Savings Bank  vs.  Banco do Brasil

Postal Savings Bank

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Postal Savings Bank are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Postal Savings may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Banco do Brasil

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Banco do Brasil are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Banco Do is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Postal Savings and Banco Do

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

The idea behind Postal Savings Bank and Banco do Brasil 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.