Correlation Between Vale SA and Banco Santander

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

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

Diversification Opportunities for Vale SA and Banco Santander

0.37

Correlation Coefficient

Vale SA  Banco Santander

Weak diversification

The 3 months correlation between Vale and Banco is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA and Banco Santander in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco Santander and Vale SA 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 Vale SA 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 Vale SA i.e., Vale SA and Banco Santander go up and down completely randomly.

Pair Corralation between Vale SA and Banco Santander

Assuming the 90 days trading horizon Vale SA is expected to generate 5.22 times less return on investment than Banco Santander. In addition to that, Vale SA is 1.19 times more volatile than Banco Santander. It trades about 0.0 of its total potential returns per unit of risk. Banco Santander is currently generating about 0.01 per unit of volatility. If you would invest  438.00  in Banco Santander on September 1, 2024 and sell it today you would earn a total of  0.00  from holding Banco Santander or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.48%
Values	Daily Returns

Vale SA  vs.  Banco Santander

Vale SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vale SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Vale SA is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Banco Santander

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Banco Santander has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Banco Santander is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Vale SA and Banco Santander

The main advantage of trading using opposite Vale SA and Banco Santander positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vale SA 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 Vale SA 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.

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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 Global Correlations module to find global opportunities by holding instruments from different markets.