Correlation Between Wells Fargo and Precious Metals

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

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

Diversification Opportunities for Wells Fargo and Precious Metals

0.99

Correlation Coefficient

Wells Fargo  Precious Metals

No risk reduction

The 3 months correlation between Wells and Precious is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo Advantage and Precious Metals Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Precious Metals 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 Advantage are associated (or correlated) with Precious Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Precious Metals has no effect on the direction of Wells Fargo i.e., Wells Fargo and Precious Metals go up and down completely randomly.

Pair Corralation between Wells Fargo and Precious Metals

Assuming the 90 days horizon Wells Fargo Advantage is expected to generate 0.85 times more return on investment than Precious Metals. However, Wells Fargo Advantage is 1.18 times less risky than Precious Metals. It trades about 0.28 of its potential returns per unit of risk. Precious Metals Fund is currently generating about 0.22 per unit of risk. If you would invest  5,633  in Wells Fargo Advantage on December 20, 2024 and sell it today you would earn a total of  1,701  from holding Wells Fargo Advantage or generate 30.2% return on investment over 90 days.

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

Wells Fargo Advantage  vs.  Precious Metals Fund

Wells Fargo Advantage

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo Advantage are ranked lower than 21 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Wells Fargo showed solid returns over the last few months and may actually be approaching a breakup point.

Precious Metals

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Precious Metals Fund are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Precious Metals showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wells Fargo and Precious Metals

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

The idea behind Wells Fargo Advantage and Precious Metals Fund 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.