Correlation Between Wells Fargo and Short Oil

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Can any of the company-specific risk be diversified away by investing in both Wells Fargo and Short Oil 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 Short Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wells Fargo Diversified and Short Oil Gas, you can compare the effects of market volatilities on Wells Fargo and Short Oil 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 Short Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wells Fargo and Short Oil.

Diversification Opportunities for Wells Fargo and Short Oil

WellsShortDiversified AwayWellsShortDiversified Away100%
-0.82
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between Wells and Short is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo Diversified and Short Oil Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Oil Gas 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 Diversified are associated (or correlated) with Short Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Oil Gas has no effect on the direction of Wells Fargo i.e., Wells Fargo and Short Oil go up and down completely randomly.

Pair Corralation between Wells Fargo and Short Oil

Assuming the 90 days horizon Wells Fargo Diversified is expected to generate 1.17 times more return on investment than Short Oil. However, Wells Fargo is 1.17 times more volatile than Short Oil Gas. It trades about 0.41 of its potential returns per unit of risk. Short Oil Gas is currently generating about -0.93 per unit of risk. If you would invest  1,351  in Wells Fargo Diversified on October 20, 2024 and sell it today you would earn a total of  89.00  from holding Wells Fargo Diversified or generate 6.59% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Wells Fargo Diversified  vs.  Short Oil Gas

 Performance 
JavaScript chart by amCharts 3.21.15NovDec2025 -50510
JavaScript chart by amCharts 3.21.15EKBDX SNPIX
       Timeline  
Wells Fargo Diversified 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Wells Fargo Diversified has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Wells Fargo is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan13.613.81414.214.414.614.815
Short Oil Gas 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Short Oil Gas has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Short Oil is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan1313.51414.515

Wells Fargo and Short Oil Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-3.9-2.92-1.94-0.960.00.981.962.943.92 0.050.100.150.200.250.30
JavaScript chart by amCharts 3.21.15EKBDX SNPIX
       Returns  

Pair Trading with Wells Fargo and Short Oil

The main advantage of trading using opposite Wells Fargo and Short Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wells Fargo position performs unexpectedly, Short Oil 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 Short Oil will offset losses from the drop in Short Oil's long position.
The idea behind Wells Fargo Diversified and Short Oil Gas 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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