Correlation Between SANTANDER and British American

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

By analyzing existing cross correlation between SANTANDER UK 10 and British American Tobacco, you can compare the effects of market volatilities on SANTANDER and British American 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 SANTANDER with a short position of British American. Check out your portfolio center. Please also check ongoing floating volatility patterns of SANTANDER and British American.

Diversification Opportunities for SANTANDER and British American

-0.18

Correlation Coefficient

SANTANDER  British American

Good diversification

The 3 months correlation between SANTANDER and British is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding SANTANDER UK 10 and British American Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on British American Tobacco and 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 SANTANDER UK 10 are associated (or correlated) with British American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of British American Tobacco has no effect on the direction of SANTANDER i.e., SANTANDER and British American go up and down completely randomly.

Pair Corralation between SANTANDER and British American

Assuming the 90 days trading horizon SANTANDER is expected to generate 1.37 times less return on investment than British American. But when comparing it to its historical volatility, SANTANDER UK 10 is 2.21 times less risky than British American. It trades about 0.1 of its potential returns per unit of risk. British American Tobacco is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,791  in British American Tobacco on October 5, 2024 and sell it today you would earn a total of  900.00  from holding British American Tobacco or generate 32.25% return on investment over 90 days.

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

SANTANDER UK 10  vs.  British American Tobacco

SANTANDER UK 10

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SANTANDER UK 10 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, SANTANDER is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

British American Tobacco

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, British American is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with SANTANDER and British American

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

The idea behind SANTANDER UK 10 and British American Tobacco 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.