Correlation Between Banco Santander and Vale SA

Can any of the company-specific risk be diversified away by investing in both Banco Santander and Vale SA 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 Vale SA 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 Vale SA, you can compare the effects of market volatilities on Banco Santander and Vale SA 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 Vale SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banco Santander and Vale SA.

Diversification Opportunities for Banco Santander and Vale SA

-0.16

Correlation Coefficient

Banco Santander  Vale SA

Good diversification

The 3 months correlation between Banco and Vale is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Banco Santander Chile and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA 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 Vale SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vale SA has no effect on the direction of Banco Santander i.e., Banco Santander and Vale SA go up and down completely randomly.

Pair Corralation between Banco Santander and Vale SA

Assuming the 90 days trading horizon Banco Santander Chile is expected to generate 0.67 times more return on investment than Vale SA. However, Banco Santander Chile is 1.48 times less risky than Vale SA. It trades about 0.14 of its potential returns per unit of risk. Vale SA is currently generating about -0.11 per unit of risk. If you would invest  5,585  in Banco Santander Chile on September 26, 2024 and sell it today you would earn a total of  205.00  from holding Banco Santander Chile or generate 3.67% return on investment over 90 days.

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

Banco Santander Chile  vs.  Vale SA

Banco Santander Chile

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Banco Santander Chile has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Vale SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vale SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Banco Santander and Vale SA

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

The idea behind Banco Santander Chile and Vale 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.