Correlation Between Banco Santander and Bank of China Ltd ADR
Can any of the company-specific risk be diversified away by investing in both Banco Santander and Bank of China Ltd ADR 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 Bank of China Ltd ADR 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 Bank of China, you can compare the effects of market volatilities on Banco Santander and Bank of China Ltd ADR 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 Bank of China Ltd ADR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banco Santander and Bank of China Ltd ADR.
Diversification Opportunities for Banco Santander and Bank of China Ltd ADR
0.39 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Banco and Bank is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Banco Santander SA and Bank of China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of China Ltd ADR 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 Bank of China Ltd ADR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of China Ltd ADR has no effect on the direction of Banco Santander i.e., Banco Santander and Bank of China Ltd ADR go up and down completely randomly.
Pair Corralation between Banco Santander and Bank of China Ltd ADR
Considering the 90-day investment horizon Banco Santander SA is expected to under-perform the Bank of China Ltd ADR. In addition to that, Banco Santander is 1.05 times more volatile than Bank of China. It trades about -0.11 of its total potential returns per unit of risk. Bank of China is currently generating about -0.02 per unit of volatility. If you would invest 1,184 in Bank of China on September 1, 2024 and sell it today you would lose (14.00) from holding Bank of China or give up 1.18% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Banco Santander SA vs. Bank of China
Performance |
| Timeline |
| Banco Santander SA |
| Bank of China Ltd ADR |
Banco Santander and Bank of China Ltd ADR Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Banco Santander and Bank of China Ltd ADR
The main advantage of trading using opposite Banco Santander and Bank of China Ltd ADR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Banco Santander position performs unexpectedly, Bank of China Ltd ADR 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 Bank of China Ltd ADR will offset losses from the drop in Bank of China Ltd ADR's long position.| Banco Santander vs. Barclays PLC ADR | Banco Santander vs. ING Group NV | Banco Santander vs. HSBC Holdings PLC | Banco Santander vs. Natwest Group PLC |
| Bank of China Ltd ADR vs. China Construction Bank | Bank of China Ltd ADR vs. Industrial and Commercial | Bank of China Ltd ADR vs. China Construction Bank | Bank of China Ltd ADR vs. Bank of America |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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