Correlation Between Repsol SA and Santos

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

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

Diversification Opportunities for Repsol SA and Santos

0.27

Correlation Coefficient

Repsol SA  Santos

Modest diversification

The 3 months correlation between Repsol and Santos is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Repsol SA and Santos Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Santos Ltd ADR and Repsol 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 Repsol SA are associated (or correlated) with Santos. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Santos Ltd ADR has no effect on the direction of Repsol SA i.e., Repsol SA and Santos go up and down completely randomly.

Pair Corralation between Repsol SA and Santos

Assuming the 90 days horizon Repsol SA is expected to generate 1.87 times less return on investment than Santos. But when comparing it to its historical volatility, Repsol SA is 1.16 times less risky than Santos. It trades about 0.04 of its potential returns per unit of risk. Santos Ltd ADR is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  470.00  in Santos Ltd ADR on September 17, 2024 and sell it today you would earn a total of  68.00  from holding Santos Ltd ADR or generate 14.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	21.53%
Values	Daily Returns

Repsol SA  vs.  Santos Ltd ADR

Repsol SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Repsol SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Repsol SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Santos Ltd ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Santos Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Santos is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Repsol SA and Santos

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

The idea behind Repsol SA and Santos Ltd ADR 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.