Correlation Between Telefonica and Banco Santander

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

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

Diversification Opportunities for Telefonica and Banco Santander

0.91

Correlation Coefficient

Telefonica  Banco Santander

Almost no diversification

The 3 months correlation between Telefonica and Banco is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Telefonica and Banco Santander in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco Santander and Telefonica 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 Telefonica are associated (or correlated) with Banco Santander. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banco Santander has no effect on the direction of Telefonica i.e., Telefonica and Banco Santander go up and down completely randomly.

Pair Corralation between Telefonica and Banco Santander

Assuming the 90 days trading horizon Telefonica is expected to generate 3.96 times less return on investment than Banco Santander. But when comparing it to its historical volatility, Telefonica is 2.05 times less risky than Banco Santander. It trades about 0.15 of its potential returns per unit of risk. Banco Santander is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  440.00  in Banco Santander on December 28, 2024 and sell it today you would earn a total of  205.00  from holding Banco Santander or generate 46.59% return on investment over 90 days.

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

Telefonica  vs.  Banco Santander

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.

Banco Santander

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Banco Santander are ranked lower than 22 (%) 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.

Pair Trading with Telefonica and Banco Santander

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

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