Correlation Between American High-income and Wells Fargo

Can any of the company-specific risk be diversified away by investing in both American High-income 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 High-income 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 High Income Municipal and Wells Fargo Advantage, you can compare the effects of market volatilities on American High-income 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 High-income with a short position of Wells Fargo. Check out your portfolio center. Please also check ongoing floating volatility patterns of American High-income and Wells Fargo.

Diversification Opportunities for American High-income and Wells Fargo

0.99

Correlation Coefficient

American High-income  Wells Fargo

No risk reduction

The 3 months correlation between American and Wells is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding American High Income Municipal and Wells Fargo Advantage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo Advantage and American High-income 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 High Income Municipal 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 Advantage has no effect on the direction of American High-income i.e., American High-income and Wells Fargo go up and down completely randomly.

Pair Corralation between American High-income and Wells Fargo

Assuming the 90 days horizon American High Income Municipal is expected to under-perform the Wells Fargo. But the mutual fund apears to be less risky and, when comparing its historical volatility, American High Income Municipal is 1.01 times less risky than Wells Fargo. The mutual fund trades about -0.01 of its potential returns per unit of risk. The Wells Fargo Advantage is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  942.00  in Wells Fargo Advantage on December 29, 2024 and sell it today you would lose (1.00) from holding Wells Fargo Advantage or give up 0.11% of portfolio value over 90 days.

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

American High Income Municipal  vs.  Wells Fargo Advantage

American High Income

Risk-Adjusted Performance

Very Weak

Over the last 90 days American High Income Municipal has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, American High-income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Wells Fargo Advantage

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wells Fargo Advantage has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward 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 High-income and Wells Fargo

The main advantage of trading using opposite American High-income and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American High-income 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 High Income Municipal and Wells Fargo Advantage 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.