Correlation Between Banco Santander and Bank Negara

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

By analyzing existing cross correlation between Banco Santander Brasil and Bank Negara Indonesia, you can compare the effects of market volatilities on Banco Santander and Bank Negara 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 Bank Negara. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banco Santander and Bank Negara.

Diversification Opportunities for Banco Santander and Bank Negara

0.87

Correlation Coefficient

Banco Santander  Bank Negara

Very poor diversification

The 3 months correlation between Banco and Bank is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Banco Santander Brasil and Bank Negara Indonesia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Negara Indonesia 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 Brasil are associated (or correlated) with Bank Negara. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Negara Indonesia has no effect on the direction of Banco Santander i.e., Banco Santander and Bank Negara go up and down completely randomly.

Pair Corralation between Banco Santander and Bank Negara

Given the investment horizon of 90 days Banco Santander Brasil is expected to under-perform the Bank Negara. But the stock apears to be less risky and, when comparing its historical volatility, Banco Santander Brasil is 1.2 times less risky than Bank Negara. The stock trades about -0.26 of its potential returns per unit of risk. The Bank Negara Indonesia is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  1,488  in Bank Negara Indonesia on September 27, 2024 and sell it today you would lose (153.00) from holding Bank Negara Indonesia or give up 10.28% of portfolio value over 90 days.

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

Banco Santander Brasil  vs.  Bank Negara Indonesia

Banco Santander Brasil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Banco Santander Brasil has generated negative risk-adjusted returns adding no value to investors with long positions. Even with inconsistent performance in the last few months, the Stock's fundamental drivers remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Bank Negara Indonesia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank Negara Indonesia has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Banco Santander and Bank Negara

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

The idea behind Banco Santander Brasil and Bank Negara Indonesia 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.