Correlation Between Total Return and Wells Fargo

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

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

Diversification Opportunities for Total Return and Wells Fargo

0.47

Correlation Coefficient

Total Return  Wells Fargo

Very weak diversification

The 3 months correlation between Total and Wells is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Total Return Bond and Wells Fargo Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo Large and Total Return 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 Total Return Bond 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 Large has no effect on the direction of Total Return i.e., Total Return and Wells Fargo go up and down completely randomly.

Pair Corralation between Total Return and Wells Fargo

Assuming the 90 days horizon Total Return is expected to generate 3.3 times less return on investment than Wells Fargo. But when comparing it to its historical volatility, Total Return Bond is 2.66 times less risky than Wells Fargo. It trades about 0.04 of its potential returns per unit of risk. Wells Fargo Large is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,374  in Wells Fargo Large on December 4, 2024 and sell it today you would earn a total of  382.00  from holding Wells Fargo Large or generate 27.8% return on investment over 90 days.

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

Total Return Bond  vs.  Wells Fargo Large

Total Return Bond

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Total Return Bond are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Total Return is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Wells Fargo Large

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wells Fargo Large has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Total Return and Wells Fargo

The main advantage of trading using opposite Total Return and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Total Return 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 Total Return Bond and Wells Fargo Large 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.