Correlation Between Banco Santander and BBVA Banco

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

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

Diversification Opportunities for Banco Santander and BBVA Banco

-0.79

Correlation Coefficient

Banco Santander  BBVA Banco

Pay attention - limited upside

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

Pair Corralation between Banco Santander and BBVA Banco

Given the investment horizon of 90 days Banco Santander is expected to generate 17.57 times less return on investment than BBVA Banco. But when comparing it to its historical volatility, Banco Santander Chile is 2.57 times less risky than BBVA Banco. It trades about 0.02 of its potential returns per unit of risk. BBVA Banco Frances is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  451.00  in BBVA Banco Frances on September 15, 2024 and sell it today you would earn a total of  1,271  from holding BBVA Banco Frances or generate 281.82% return on investment over 90 days.

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

Banco Santander Chile  vs.  BBVA Banco Frances

Banco Santander Chile

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Banco Santander Chile 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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

BBVA Banco Frances

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BBVA Banco Frances are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, BBVA Banco reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Banco Santander and BBVA Banco

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

The idea behind Banco Santander Chile and BBVA Banco Frances 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.