Correlation Between Banco Santander and CHINA CONBANK

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

By analyzing existing cross correlation between Banco Santander SA and CHINA BANK ADR20, you can compare the effects of market volatilities on Banco Santander and CHINA CONBANK 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 CHINA CONBANK. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banco Santander and CHINA CONBANK.

Diversification Opportunities for Banco Santander and CHINA CONBANK

0.7

Correlation Coefficient

Banco Santander  CHINA CONBANK

Poor diversification

The 3 months correlation between Banco and CHINA is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Banco Santander SA and CHINA BANK ADR20 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHINA BANK ADR20 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 SA are associated (or correlated) with CHINA CONBANK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHINA BANK ADR20 has no effect on the direction of Banco Santander i.e., Banco Santander and CHINA CONBANK go up and down completely randomly.

Pair Corralation between Banco Santander and CHINA CONBANK

Assuming the 90 days trading horizon Banco Santander is expected to generate 28.46 times less return on investment than CHINA CONBANK. But when comparing it to its historical volatility, Banco Santander SA is 1.3 times less risky than CHINA CONBANK. It trades about 0.01 of its potential returns per unit of risk. CHINA BANK ADR20 is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,210  in CHINA BANK ADR20 on August 31, 2024 and sell it today you would earn a total of  170.00  from holding CHINA BANK ADR20 or generate 14.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Banco Santander SA  vs.  CHINA BANK ADR20

Banco Santander SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Banco Santander SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Banco Santander is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

CHINA BANK ADR20

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA BANK ADR20 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CHINA CONBANK reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Banco Santander and CHINA CONBANK

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

The idea behind Banco Santander SA and CHINA BANK ADR20 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 Anywhere module to track or share privately all of your investments from the convenience of any device.