Correlation Between Wells Fargo and Banco Santander

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

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

Diversification Opportunities for Wells Fargo and Banco Santander

-0.18

Correlation Coefficient

Wells Fargo  Banco Santander

Good diversification

The 3 months correlation between Wells and Banco is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo and Banco Santander SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco Santander SA and Wells Fargo 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 Wells Fargo are associated (or correlated) with Banco Santander. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banco Santander SA has no effect on the direction of Wells Fargo i.e., Wells Fargo and Banco Santander go up and down completely randomly.

Pair Corralation between Wells Fargo and Banco Santander

Assuming the 90 days trading horizon Wells Fargo is expected to under-perform the Banco Santander. But the stock apears to be less risky and, when comparing its historical volatility, Wells Fargo is 1.09 times less risky than Banco Santander. The stock trades about -0.01 of its potential returns per unit of risk. The Banco Santander SA is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  439.00  in Banco Santander SA on December 30, 2024 and sell it today you would earn a total of  193.00  from holding Banco Santander SA or generate 43.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Wells Fargo  vs.  Banco Santander SA

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.

Banco Santander SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Banco Santander SA are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Banco Santander exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wells Fargo and Banco Santander

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

The idea behind Wells Fargo and Banco Santander SA 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.