Correlation Between Alior Bank and Santander Bank

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

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

Diversification Opportunities for Alior Bank and Santander Bank

0.94

Correlation Coefficient

Alior Bank  Santander Bank

Almost no diversification

The 3 months correlation between Alior and Santander is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Alior Bank SA and Santander Bank Polska in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Santander Bank Polska and Alior Bank 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 Alior Bank SA are associated (or correlated) with Santander Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Santander Bank Polska has no effect on the direction of Alior Bank i.e., Alior Bank and Santander Bank go up and down completely randomly.

Pair Corralation between Alior Bank and Santander Bank

Assuming the 90 days trading horizon Alior Bank SA is expected to generate 1.23 times more return on investment than Santander Bank. However, Alior Bank is 1.23 times more volatile than Santander Bank Polska. It trades about 0.24 of its potential returns per unit of risk. Santander Bank Polska is currently generating about 0.19 per unit of risk. If you would invest  8,598  in Alior Bank SA on December 29, 2024 and sell it today you would earn a total of  3,502  from holding Alior Bank SA or generate 40.73% return on investment over 90 days.

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

Alior Bank SA  vs.  Santander Bank Polska

Alior Bank SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alior Bank SA are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Alior Bank reported solid returns over the last few months and may actually be approaching a breakup point.

Santander Bank Polska

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Santander Bank Polska are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Santander Bank reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alior Bank and Santander Bank

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

The idea behind Alior Bank SA and Santander Bank Polska 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.