Correlation Between Banco Santander and Endesa SA

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

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

Diversification Opportunities for Banco Santander and Endesa SA

0.27

Correlation Coefficient

Banco Santander  Endesa SA

Modest diversification

The 3 months correlation between Banco and Endesa is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Banco Santander and Endesa SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Endesa SA and Banco 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 Banco Santander are associated (or correlated) with Endesa SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Endesa SA has no effect on the direction of Banco Santander i.e., Banco Santander and Endesa SA go up and down completely randomly.

Pair Corralation between Banco Santander and Endesa SA

Assuming the 90 days trading horizon Banco Santander is expected to generate 1.44 times more return on investment than Endesa SA. However, Banco Santander is 1.44 times more volatile than Endesa SA. It trades about 0.08 of its potential returns per unit of risk. Endesa SA is currently generating about 0.05 per unit of risk. If you would invest  431.00  in Banco Santander on September 13, 2024 and sell it today you would earn a total of  35.00  from holding Banco Santander or generate 8.12% return on investment over 90 days.

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

Banco Santander  vs.  Endesa SA

Banco Santander

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Banco Santander are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Banco Santander may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Endesa SA

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Endesa SA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Endesa SA is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Banco Santander and Endesa SA

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

The idea behind Banco Santander and Endesa SA 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.