Correlation Between NatWest Group and Wells Fargo

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

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

Diversification Opportunities for NatWest Group and Wells Fargo

0.8

Correlation Coefficient

NatWest Group  Wells Fargo

Very poor diversification

The 3 months correlation between NatWest and Wells is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding NatWest Group plc and Wells Fargo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo and NatWest Group 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 NatWest Group plc 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 NatWest Group i.e., NatWest Group and Wells Fargo go up and down completely randomly.

Pair Corralation between NatWest Group and Wells Fargo

Assuming the 90 days trading horizon NatWest Group plc is expected to generate 0.92 times more return on investment than Wells Fargo. However, NatWest Group plc is 1.09 times less risky than Wells Fargo. It trades about 0.2 of its potential returns per unit of risk. Wells Fargo is currently generating about 0.14 per unit of risk. If you would invest  2,666  in NatWest Group plc on October 23, 2024 and sell it today you would earn a total of  3,524  from holding NatWest Group plc or generate 132.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.19%
Values	Daily Returns

NatWest Group plc  vs.  Wells Fargo

NatWest Group plc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NatWest Group plc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, NatWest Group sustained solid returns over the last few months and may actually be approaching a breakup point.

Wells Fargo

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Wells Fargo sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NatWest Group and Wells Fargo

The main advantage of trading using opposite NatWest Group and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NatWest Group 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 NatWest Group plc 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 Commodity Directory module to find actively traded commodities issued by global exchanges.