Correlation Between Banco Santander and Telefonica

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

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

Diversification Opportunities for Banco Santander and Telefonica

0.92

Correlation Coefficient

Banco Santander  Telefonica

Almost no diversification

The 3 months correlation between Banco and Telefonica is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Banco Santander and Telefonica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefonica 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 Telefonica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telefonica has no effect on the direction of Banco Santander i.e., Banco Santander and Telefonica go up and down completely randomly.

Pair Corralation between Banco Santander and Telefonica

Assuming the 90 days trading horizon Banco Santander is expected to generate 2.07 times more return on investment than Telefonica. However, Banco Santander is 2.07 times more volatile than Telefonica. It trades about 0.26 of its potential returns per unit of risk. Telefonica is currently generating about 0.14 per unit of risk. If you would invest  440.00  in Banco Santander on December 30, 2024 and sell it today you would earn a total of  192.00  from holding Banco Santander or generate 43.64% return on investment over 90 days.

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

Banco Santander  vs.  Telefonica

Banco Santander

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Banco Santander are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Banco Santander exhibited solid returns over the last few months and may actually be approaching a breakup point.

Telefonica

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonica are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Telefonica may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Banco Santander and Telefonica

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

The idea behind Banco Santander and Telefonica 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.