Correlation Between Banco Santander and HSBC Holdings

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

By analyzing existing cross correlation between Banco Santander Chile and HSBC Holdings plc, you can compare the effects of market volatilities on Banco Santander and HSBC Holdings 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 Santander with a short position of HSBC Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banco Santander and HSBC Holdings.

Diversification Opportunities for Banco Santander and HSBC Holdings

0.5

Correlation Coefficient

Banco Santander  HSBC Holdings

Very weak diversification

The 3 months correlation between Banco and HSBC is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Banco Santander Chile and HSBC Holdings plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HSBC Holdings plc and Banco Santander 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 Santander Chile are associated (or correlated) with HSBC Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HSBC Holdings plc has no effect on the direction of Banco Santander i.e., Banco Santander and HSBC Holdings go up and down completely randomly.

Pair Corralation between Banco Santander and HSBC Holdings

Assuming the 90 days trading horizon Banco Santander is expected to generate 2.8 times less return on investment than HSBC Holdings. But when comparing it to its historical volatility, Banco Santander Chile is 2.7 times less risky than HSBC Holdings. It trades about 0.06 of its potential returns per unit of risk. HSBC Holdings plc is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3,376  in HSBC Holdings plc on September 23, 2024 and sell it today you would earn a total of  3,974  from holding HSBC Holdings plc or generate 117.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.0%
Values	Daily Returns

Banco Santander Chile  vs.  HSBC Holdings plc

Banco Santander Chile

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Banco Santander Chile are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Banco Santander is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

HSBC Holdings plc

Risk-Adjusted Performance

18 of 100

Solid

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

Pair Trading with Banco Santander and HSBC Holdings

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

The idea behind Banco Santander Chile and HSBC Holdings plc 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.