Correlation Between CF Bankshares and Banco Santander

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

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

Diversification Opportunities for CF Bankshares and Banco Santander

-0.16

Correlation Coefficient

CF Bankshares  Banco Santander

Good diversification

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

Pair Corralation between CF Bankshares and Banco Santander

Given the investment horizon of 90 days CF Bankshares is expected to under-perform the Banco Santander. But the stock apears to be less risky and, when comparing its historical volatility, CF Bankshares is 1.08 times less risky than Banco Santander. The stock trades about -0.05 of its potential returns per unit of risk. The Banco Santander Brasil is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  387.00  in Banco Santander Brasil on December 27, 2024 and sell it today you would earn a total of  91.50  from holding Banco Santander Brasil or generate 23.64% return on investment over 90 days.

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

CF Bankshares  vs.  Banco Santander Brasil

CF Bankshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days CF Bankshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental drivers, CF Bankshares is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Banco Santander Brasil

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Banco Santander Brasil are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent fundamental drivers, Banco Santander reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CF Bankshares and Banco Santander

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

The idea behind CF Bankshares and Banco Santander Brasil 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.