Correlation Between Wells Fargo and American Beacon

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

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

Diversification Opportunities for Wells Fargo and American Beacon

0.74

Correlation Coefficient

Wells Fargo  American Beacon

Poor diversification

The 3 months correlation between Wells and American is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo High and American Beacon Ark in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Ark 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 High are associated (or correlated) with American Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Beacon Ark has no effect on the direction of Wells Fargo i.e., Wells Fargo and American Beacon go up and down completely randomly.

Pair Corralation between Wells Fargo and American Beacon

Assuming the 90 days horizon Wells Fargo is expected to generate 23.55 times less return on investment than American Beacon. But when comparing it to its historical volatility, Wells Fargo High is 13.22 times less risky than American Beacon. It trades about 0.11 of its potential returns per unit of risk. American Beacon Ark is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  1,324  in American Beacon Ark on October 6, 2024 and sell it today you would earn a total of  317.00  from holding American Beacon Ark or generate 23.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.62%
Values	Daily Returns

Wells Fargo High  vs.  American Beacon Ark

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.

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.

Pair Trading with Wells Fargo and American Beacon

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

The idea behind Wells Fargo High and American Beacon Ark 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.