Correlation Between Bitcoin and Wells Fargo

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

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

Diversification Opportunities for Bitcoin and Wells Fargo

0.44

Correlation Coefficient

Bitcoin  Wells Fargo

Very weak diversification

The 3 months correlation between Bitcoin and Wells is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Bitcoin and Wells Fargo Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo Short and Bitcoin 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 Bitcoin 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 Short has no effect on the direction of Bitcoin i.e., Bitcoin and Wells Fargo go up and down completely randomly.

Pair Corralation between Bitcoin and Wells Fargo

Assuming the 90 days trading horizon Bitcoin is expected to generate 26.85 times more return on investment than Wells Fargo. However, Bitcoin is 26.85 times more volatile than Wells Fargo Short. It trades about 0.24 of its potential returns per unit of risk. Wells Fargo Short is currently generating about 0.08 per unit of risk. If you would invest  6,657,777  in Bitcoin on October 24, 2024 and sell it today you would earn a total of  3,935,023  from holding Bitcoin or generate 59.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	93.65%
Values	Daily Returns

Bitcoin  vs.  Wells Fargo Short

Bitcoin

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bitcoin are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Bitcoin exhibited solid returns over the last few months and may actually be approaching a breakup point.

Wells Fargo Short

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo Short 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 Bitcoin and Wells Fargo

The main advantage of trading using opposite Bitcoin and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bitcoin 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 Bitcoin and Wells Fargo Short 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.