Correlation Between American Beacon and Wells Fargo

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

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

Diversification Opportunities for American Beacon and Wells Fargo

0.74

Correlation Coefficient

American Beacon  Wells Fargo

Poor diversification

The 3 months correlation between American and Wells is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding American Beacon Ark and Wells Fargo High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo High and American Beacon 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 American Beacon Ark 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 High has no effect on the direction of American Beacon i.e., American Beacon and Wells Fargo go up and down completely randomly.

Pair Corralation between American Beacon and Wells Fargo

Assuming the 90 days horizon American Beacon Ark is expected to generate 12.42 times more return on investment than Wells Fargo. However, American Beacon is 12.42 times more volatile than Wells Fargo High. It trades about 0.18 of its potential returns per unit of risk. Wells Fargo High is currently generating about 0.08 per unit of risk. If you would invest  1,263  in American Beacon Ark on October 6, 2024 and sell it today you would earn a total of  378.00  from holding American Beacon Ark or generate 29.93% return on investment over 90 days.

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

American Beacon Ark  vs.  Wells Fargo High

American Beacon Ark

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Beacon Ark are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, American Beacon showed solid returns over the last few months and may actually be approaching a breakup point.

Wells Fargo High

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo High are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Wells Fargo is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with American Beacon and Wells Fargo

The main advantage of trading using opposite American Beacon and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Beacon 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 American Beacon Ark and Wells Fargo High 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.