Correlation Between Banco Santander and China Construction

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

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

Diversification Opportunities for Banco Santander and China Construction

0.38

Correlation Coefficient

Banco Santander  China Construction

Weak diversification

The 3 months correlation between Banco and China is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Banco Santander SA and China Construction Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Construction Bank 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 SA are associated (or correlated) with China Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Construction Bank has no effect on the direction of Banco Santander i.e., Banco Santander and China Construction go up and down completely randomly.

Pair Corralation between Banco Santander and China Construction

Considering the 90-day investment horizon Banco Santander SA is expected to under-perform the China Construction. But the stock apears to be less risky and, when comparing its historical volatility, Banco Santander SA is 1.37 times less risky than China Construction. The stock trades about -0.01 of its potential returns per unit of risk. The China Construction Bank is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,366  in China Construction Bank on September 3, 2024 and sell it today you would earn a total of  153.00  from holding China Construction Bank or generate 11.2% return on investment over 90 days.

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

Banco Santander SA  vs.  China Construction Bank

Banco Santander SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

China Construction Bank

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Construction Bank are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical indicators, China Construction may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Banco Santander and China Construction

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

The idea behind Banco Santander SA and China Construction Bank 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.