Correlation Between Goldman Sachs and Wells Fargo

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

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

Diversification Opportunities for Goldman Sachs and Wells Fargo

0.7

Correlation Coefficient

Goldman Sachs  Wells Fargo

Poor diversification

The 3 months correlation between Goldman and Wells is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Goldman Sachs Inflation and Wells Fargo Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo Income and Goldman Sachs 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 Goldman Sachs Inflation 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 Income has no effect on the direction of Goldman Sachs i.e., Goldman Sachs and Wells Fargo go up and down completely randomly.

Pair Corralation between Goldman Sachs and Wells Fargo

Assuming the 90 days horizon Goldman Sachs Inflation is expected to under-perform the Wells Fargo. But the mutual fund apears to be less risky and, when comparing its historical volatility, Goldman Sachs Inflation is 1.25 times less risky than Wells Fargo. The mutual fund trades about -0.25 of its potential returns per unit of risk. The Wells Fargo Income is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  738.00  in Wells Fargo Income on September 25, 2024 and sell it today you would lose (4.00) from holding Wells Fargo Income or give up 0.54% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Goldman Sachs Inflation  vs.  Wells Fargo Income

Goldman Sachs Inflation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Goldman Sachs Inflation has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Goldman Sachs is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Wells Fargo Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wells Fargo Income 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.

Pair Trading with Goldman Sachs and Wells Fargo

The main advantage of trading using opposite Goldman Sachs and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Goldman Sachs 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 Goldman Sachs Inflation and Wells Fargo Income 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.