Correlation Between Banco Santander and Merck

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

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

Diversification Opportunities for Banco Santander and Merck

-0.88

Correlation Coefficient

Banco Santander  Merck

Pay attention - limited upside

The 3 months correlation between Banco and Merck is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding Banco Santander SA and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company 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 SA are associated (or correlated) with Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Banco Santander i.e., Banco Santander and Merck go up and down completely randomly.

Pair Corralation between Banco Santander and Merck

Assuming the 90 days trading horizon Banco Santander SA is expected to generate 0.69 times more return on investment than Merck. However, Banco Santander SA is 1.44 times less risky than Merck. It trades about 0.47 of its potential returns per unit of risk. Merck Company is currently generating about -0.1 per unit of risk. If you would invest  501.00  in Banco Santander SA on December 1, 2024 and sell it today you would earn a total of  118.00  from holding Banco Santander SA or generate 23.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

Banco Santander SA  vs.  Merck Company

Banco Santander SA

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Banco Santander SA are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, Banco Santander demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Merck Company

Risk-Adjusted Performance

Very Weak

Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's forward-looking signals remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Banco Santander and Merck

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

The idea behind Banco Santander SA and Merck Company 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.