Correlation Between John Hancock and Wells Fargo

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

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

Diversification Opportunities for John Hancock and Wells Fargo

0.82

Correlation Coefficient

John Hancock  Wells Fargo

Very poor diversification

The 3 months correlation between John and Wells is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding John Hancock Disciplined and Wells Fargo Special in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo Special and John Hancock 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 John Hancock Disciplined 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 Special has no effect on the direction of John Hancock i.e., John Hancock and Wells Fargo go up and down completely randomly.

Pair Corralation between John Hancock and Wells Fargo

Assuming the 90 days horizon John Hancock Disciplined is expected to under-perform the Wells Fargo. In addition to that, John Hancock is 1.14 times more volatile than Wells Fargo Special. It trades about -0.04 of its total potential returns per unit of risk. Wells Fargo Special is currently generating about -0.02 per unit of volatility. If you would invest  4,758  in Wells Fargo Special on December 28, 2024 and sell it today you would lose (44.00) from holding Wells Fargo Special or give up 0.92% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.36%
Values	Daily Returns

John Hancock Disciplined  vs.  Wells Fargo Special

John Hancock Disciplined

Risk-Adjusted Performance

Very Weak

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

Wells Fargo Special

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wells Fargo Special has generated negative risk-adjusted returns adding no value to fund investors. 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 John Hancock and Wells Fargo

The main advantage of trading using opposite John Hancock and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if John Hancock 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 John Hancock Disciplined and Wells Fargo Special 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.