Correlation Between Wells Fargo and Hennessy Technology

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

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

Diversification Opportunities for Wells Fargo and Hennessy Technology

0.68

Correlation Coefficient

Wells Fargo  Hennessy Technology

Poor diversification

The 3 months correlation between Wells and Hennessy is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo Mon and Hennessy Technology Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hennessy Technology and Wells Fargo 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 Wells Fargo Mon are associated (or correlated) with Hennessy Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hennessy Technology has no effect on the direction of Wells Fargo i.e., Wells Fargo and Hennessy Technology go up and down completely randomly.

Pair Corralation between Wells Fargo and Hennessy Technology

Assuming the 90 days horizon Wells Fargo Mon is expected to under-perform the Hennessy Technology. But the mutual fund apears to be less risky and, when comparing its historical volatility, Wells Fargo Mon is 1.04 times less risky than Hennessy Technology. The mutual fund trades about -0.19 of its potential returns per unit of risk. The Hennessy Technology Fund is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  2,374  in Hennessy Technology Fund on October 7, 2024 and sell it today you would lose (79.00) from holding Hennessy Technology Fund or give up 3.33% of portfolio value over 90 days.

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

Wells Fargo Mon  vs.  Hennessy Technology Fund

Wells Fargo Mon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wells Fargo Mon 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.

Hennessy Technology

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hennessy Technology Fund are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Hennessy Technology is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Wells Fargo and Hennessy Technology

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

The idea behind Wells Fargo Mon and Hennessy Technology Fund 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.