Correlation Between ING Groep and Wells Fargo

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

By analyzing existing cross correlation between ING Groep NV and Wells Fargo, you can compare the effects of market volatilities on ING Groep and Wells Fargo 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 ING Groep with a short position of Wells Fargo. Check out your portfolio center. Please also check ongoing floating volatility patterns of ING Groep and Wells Fargo.

Diversification Opportunities for ING Groep and Wells Fargo

0.73

Correlation Coefficient

ING Groep  Wells Fargo

Poor diversification

The 3 months correlation between ING and Wells is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding ING Groep NV and Wells Fargo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo and ING Groep 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 ING Groep NV are associated (or correlated) with Wells Fargo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wells Fargo has no effect on the direction of ING Groep i.e., ING Groep and Wells Fargo go up and down completely randomly.

Pair Corralation between ING Groep and Wells Fargo

Assuming the 90 days trading horizon ING Groep NV is expected to generate 0.41 times more return on investment than Wells Fargo. However, ING Groep NV is 2.47 times less risky than Wells Fargo. It trades about 0.41 of its potential returns per unit of risk. Wells Fargo is currently generating about -0.19 per unit of risk. If you would invest  1,580  in ING Groep NV on December 4, 2024 and sell it today you would earn a total of  134.00  from holding ING Groep NV or generate 8.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

ING Groep NV  vs.  Wells Fargo

ING Groep NV

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ING Groep NV are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, ING Groep reported solid returns over the last few months and may actually be approaching a breakup point.

Wells Fargo

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wells Fargo has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Wells Fargo is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with ING Groep and Wells Fargo

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

The idea behind ING Groep NV and Wells Fargo 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.