Correlation Between First Business and Banco Santander

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

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

Diversification Opportunities for First Business and Banco Santander

-0.53

Correlation Coefficient

First Business  Banco Santander

Excellent diversification

The 3 months correlation between First and Banco is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding First Business Financial 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 First Business 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 First Business Financial 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 First Business i.e., First Business and Banco Santander go up and down completely randomly.

Pair Corralation between First Business and Banco Santander

Given the investment horizon of 90 days First Business Financial is expected to under-perform the Banco Santander. But the stock apears to be less risky and, when comparing its historical volatility, First Business Financial is 1.45 times less risky than Banco Santander. The stock trades about -0.23 of its potential returns per unit of risk. The Banco Santander Brasil is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  419.00  in Banco Santander Brasil on October 9, 2024 and sell it today you would lose (22.00) from holding Banco Santander Brasil or give up 5.25% of portfolio value over 90 days.

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

First Business Financial  vs.  Banco Santander Brasil

First Business Financial

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Business Financial are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting forward indicators, First Business may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 February 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with First Business and Banco Santander

The main advantage of trading using opposite First Business and Banco Santander positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Business 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 First Business Financial 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.

Check out your portfolio center.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..