Correlation Between Wells Fargo and Utilities Fund

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

Diversification Opportunities for Wells Fargo and Utilities Fund

0.86

Correlation Coefficient

Wells Fargo  Utilities Fund

Very poor diversification

The 3 months correlation between WELLS and Utilities is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo Advantage and Utilities Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Utilities Fund Class 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 Utilities Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Utilities Fund Class has no effect on the direction of Wells Fargo i.e., Wells Fargo and Utilities Fund go up and down completely randomly.

Pair Corralation between Wells Fargo and Utilities Fund

Assuming the 90 days horizon Wells Fargo is expected to generate 1.25 times less return on investment than Utilities Fund. But when comparing it to its historical volatility, Wells Fargo Advantage is 1.08 times less risky than Utilities Fund. It trades about 0.06 of its potential returns per unit of risk. Utilities Fund Class is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  5,057  in Utilities Fund Class on December 30, 2024 and sell it today you would earn a total of  217.00  from holding Utilities Fund Class or generate 4.29% return on investment over 90 days.

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

Wells Fargo Advantage  vs.  Utilities Fund Class

Wells Fargo Advantage

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo Advantage are ranked lower than 5 (%) 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.

Utilities Fund Class

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Utilities Fund Class are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Utilities Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Wells Fargo and Utilities Fund

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

The idea behind Wells Fargo Advantage and Utilities Fund Class 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.