Correlation Between SANTANDER and SPDR SP

Can any of the company-specific risk be diversified away by investing in both SANTANDER and SPDR SP 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 SPDR SP 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 SPDR SP Materials, you can compare the effects of market volatilities on SANTANDER and SPDR SP 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 SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of SANTANDER and SPDR SP.

Diversification Opportunities for SANTANDER and SPDR SP

0.36

Correlation Coefficient

SANTANDER  SPDR SP

Weak diversification

The 3 months correlation between SANTANDER and SPDR is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding SANTANDER UK 10 and SPDR SP Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Materials 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Materials has no effect on the direction of SANTANDER i.e., SANTANDER and SPDR SP go up and down completely randomly.

Pair Corralation between SANTANDER and SPDR SP

Assuming the 90 days trading horizon SANTANDER UK 10 is expected to generate 0.3 times more return on investment than SPDR SP. However, SANTANDER UK 10 is 3.33 times less risky than SPDR SP. It trades about -0.03 of its potential returns per unit of risk. SPDR SP Materials is currently generating about -0.1 per unit of risk. If you would invest  15,870  in SANTANDER UK 10 on December 1, 2024 and sell it today you would lose (70.00) from holding SANTANDER UK 10 or give up 0.44% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

SANTANDER UK 10  vs.  SPDR SP Materials

SANTANDER UK 10

Risk-Adjusted Performance

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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

SPDR SP Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SP Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, SPDR SP 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 SPDR SP

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

The idea behind SANTANDER UK 10 and SPDR SP Materials 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.