Correlation Between Barclays PLC and Banco Bilbao

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

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

Diversification Opportunities for Barclays PLC and Banco Bilbao

0.89

Correlation Coefficient

Barclays PLC  Banco Bilbao

Very poor diversification

The 3 months correlation between Barclays and Banco is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Barclays PLC and Banco Bilbao Viscaya in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco Bilbao Viscaya and Barclays PLC 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 Barclays PLC are associated (or correlated) with Banco Bilbao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banco Bilbao Viscaya has no effect on the direction of Barclays PLC i.e., Barclays PLC and Banco Bilbao go up and down completely randomly.

Pair Corralation between Barclays PLC and Banco Bilbao

Assuming the 90 days horizon Barclays PLC is expected to generate 2.41 times less return on investment than Banco Bilbao. In addition to that, Barclays PLC is 1.68 times more volatile than Banco Bilbao Viscaya. It trades about 0.08 of its total potential returns per unit of risk. Banco Bilbao Viscaya is currently generating about 0.33 per unit of volatility. If you would invest  943.00  in Banco Bilbao Viscaya on December 1, 2024 and sell it today you would earn a total of  380.00  from holding Banco Bilbao Viscaya or generate 40.3% return on investment over 90 days.

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

Barclays PLC  vs.  Banco Bilbao Viscaya

Barclays PLC

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Barclays PLC are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Barclays PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Banco Bilbao Viscaya

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Banco Bilbao Viscaya are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Banco Bilbao sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Barclays PLC and Banco Bilbao

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

The idea behind Barclays PLC and Banco Bilbao Viscaya 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.