Correlation Between Santander Bank and LPP SA

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

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

Diversification Opportunities for Santander Bank and LPP SA

-0.21

Correlation Coefficient

Santander Bank  LPP SA

Very good diversification

The 3 months correlation between Santander and LPP is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Santander Bank Polska and LPP SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LPP SA and Santander Bank 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 Bank Polska are associated (or correlated) with LPP SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LPP SA has no effect on the direction of Santander Bank i.e., Santander Bank and LPP SA go up and down completely randomly.

Pair Corralation between Santander Bank and LPP SA

Assuming the 90 days trading horizon Santander Bank is expected to generate 4.99 times less return on investment than LPP SA. But when comparing it to its historical volatility, Santander Bank Polska is 1.07 times less risky than LPP SA. It trades about 0.03 of its potential returns per unit of risk. LPP SA is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,384,951  in LPP SA on September 12, 2024 and sell it today you would earn a total of  297,049  from holding LPP SA or generate 21.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Santander Bank Polska  vs.  LPP SA

Santander Bank Polska

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Santander Bank Polska are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Santander Bank is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

LPP SA

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in LPP SA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, LPP SA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Santander Bank and LPP SA

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

The idea behind Santander Bank Polska and LPP 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.

Check out your portfolio center.

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.