Correlation Between Heritage Financial and Banco Santander

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

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

Diversification Opportunities for Heritage Financial and Banco Santander

0.02

Correlation Coefficient

Heritage Financial  Banco Santander

Significant diversification

The 3 months correlation between Heritage and Banco is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Heritage Financial and Banco Santander Chile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco Santander Chile and Heritage Financial 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 Heritage 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 Chile has no effect on the direction of Heritage Financial i.e., Heritage Financial and Banco Santander go up and down completely randomly.

Pair Corralation between Heritage Financial and Banco Santander

Given the investment horizon of 90 days Heritage Financial is expected to under-perform the Banco Santander. In addition to that, Heritage Financial is 1.11 times more volatile than Banco Santander Chile. It trades about -0.06 of its total potential returns per unit of risk. Banco Santander Chile is currently generating about 0.23 per unit of volatility. If you would invest  2,051  in Banco Santander Chile on December 4, 2024 and sell it today you would earn a total of  147.00  from holding Banco Santander Chile or generate 7.17% return on investment over 90 days.

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

Heritage Financial  vs.  Banco Santander Chile

Heritage Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Heritage Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Heritage Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Banco Santander Chile

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Banco Santander Chile are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Banco Santander exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Heritage Financial and Banco Santander

The main advantage of trading using opposite Heritage Financial and Banco Santander positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Heritage Financial 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 Heritage Financial and Banco Santander Chile 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.