Correlation Between Banco Santander and Petroleo Brasileiro

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

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

Diversification Opportunities for Banco Santander and Petroleo Brasileiro

0.79

Correlation Coefficient

Banco Santander  Petroleo Brasileiro

Poor diversification

The 3 months correlation between Banco and Petroleo is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Banco Santander and Petroleo Brasileiro SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petroleo Brasileiro 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 Petroleo Brasileiro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petroleo Brasileiro has no effect on the direction of Banco Santander i.e., Banco Santander and Petroleo Brasileiro go up and down completely randomly.

Pair Corralation between Banco Santander and Petroleo Brasileiro

Assuming the 90 days trading horizon Banco Santander is expected to generate 1.03 times more return on investment than Petroleo Brasileiro. However, Banco Santander is 1.03 times more volatile than Petroleo Brasileiro SA. It trades about 0.3 of its potential returns per unit of risk. Petroleo Brasileiro SA is currently generating about 0.08 per unit of risk. If you would invest  438.00  in Banco Santander on December 1, 2024 and sell it today you would earn a total of  184.00  from holding Banco Santander or generate 42.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Banco Santander  vs.  Petroleo Brasileiro SA

Banco Santander

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Banco Santander are ranked lower than 23 (%) 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.

Petroleo Brasileiro

Risk-Adjusted Performance

Modest

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

Pair Trading with Banco Santander and Petroleo Brasileiro

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

The idea behind Banco Santander and Petroleo Brasileiro 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.