Correlation Between Banking Fund and Wells Fargo

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

Diversification Opportunities for Banking Fund and Wells Fargo

0.37

Correlation Coefficient

Banking Fund  Wells Fargo

Weak diversification

The 3 months correlation between Banking and Wells is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Banking Fund Investor and Wells Fargo High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo High and Banking 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 Banking Fund Investor 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 High has no effect on the direction of Banking Fund i.e., Banking Fund and Wells Fargo go up and down completely randomly.

Pair Corralation between Banking Fund and Wells Fargo

Assuming the 90 days horizon Banking Fund is expected to generate 1.12 times less return on investment than Wells Fargo. In addition to that, Banking Fund is 9.85 times more volatile than Wells Fargo High. It trades about 0.01 of its total potential returns per unit of risk. Wells Fargo High is currently generating about 0.11 per unit of volatility. If you would invest  300.00  in Wells Fargo High on October 6, 2024 and sell it today you would earn a total of  3.00  from holding Wells Fargo High or generate 1.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.62%
Values	Daily Returns

Banking Fund Investor  vs.  Wells Fargo High

Banking Fund Investor

Risk-Adjusted Performance

3 of 100

Insignificant

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

Wells Fargo High

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo High are ranked lower than 6 (%) 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.

Pair Trading with Banking Fund and Wells Fargo

The main advantage of trading using opposite Banking Fund and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Banking 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 Banking Fund Investor and Wells Fargo High 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.

Check out your portfolio center.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.