Correlation Between Income Fund and Wells Fargo

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

By analyzing existing cross correlation between Income Fund Institutional and Wells Fargo Short Term, you can compare the effects of market volatilities on Income Fund and Wells Fargo 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 Income Fund with a short position of Wells Fargo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Income Fund and Wells Fargo.

Diversification Opportunities for Income Fund and Wells Fargo

0.95

Correlation Coefficient

Income Fund  Wells Fargo

Almost no diversification

The 3 months correlation between Income and Wells is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Income Fund Institutional and Wells Fargo Short Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo Short and Income Fund 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 Income Fund Institutional are associated (or correlated) with Wells Fargo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wells Fargo Short has no effect on the direction of Income Fund i.e., Income Fund and Wells Fargo go up and down completely randomly.

Pair Corralation between Income Fund and Wells Fargo

Assuming the 90 days horizon Income Fund Institutional is expected to generate 3.24 times more return on investment than Wells Fargo. However, Income Fund is 3.24 times more volatile than Wells Fargo Short Term. It trades about 0.1 of its potential returns per unit of risk. Wells Fargo Short Term is currently generating about 0.23 per unit of risk. If you would invest  900.00  in Income Fund Institutional on December 29, 2024 and sell it today you would earn a total of  17.00  from holding Income Fund Institutional or generate 1.89% return on investment over 90 days.

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

Income Fund Institutional  vs.  Wells Fargo Short Term

Income Fund Institutional

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Income Fund Institutional are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Income Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Wells Fargo Short

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo Short Term are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Wells Fargo is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Income Fund and Wells Fargo

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

The idea behind Income Fund Institutional and Wells Fargo Short Term 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.