Correlation Between Wells Fargo and State Street

Can any of the company-specific risk be diversified away by investing in both Wells Fargo and State Street 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 State Street 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 State Street Target, you can compare the effects of market volatilities on Wells Fargo and State Street 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 State Street. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wells Fargo and State Street.

Diversification Opportunities for Wells Fargo and State Street

0.61

Correlation Coefficient

Wells Fargo  State Street

Poor diversification

The 3 months correlation between Wells and State is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo Diversified and State Street Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Street Target 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 State Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Street Target has no effect on the direction of Wells Fargo i.e., Wells Fargo and State Street go up and down completely randomly.

Pair Corralation between Wells Fargo and State Street

Assuming the 90 days horizon Wells Fargo Diversified is expected to generate 1.12 times more return on investment than State Street. However, Wells Fargo is 1.12 times more volatile than State Street Target. It trades about -0.14 of its potential returns per unit of risk. State Street Target is currently generating about -0.27 per unit of risk. If you would invest  1,472  in Wells Fargo Diversified on October 9, 2024 and sell it today you would lose (67.00) from holding Wells Fargo Diversified or give up 4.55% of portfolio value over 90 days.

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

Wells Fargo Diversified  vs.  State Street Target

Wells Fargo Diversified

Risk-Adjusted Performance

0 of 100

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.

State Street Target

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days State Street Target has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward-looking indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Wells Fargo and State Street

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

The idea behind Wells Fargo Diversified and State Street Target 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.