Correlation Between Small Company and Wells Fargo

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

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

Diversification Opportunities for Small Company and Wells Fargo

-0.45

Correlation Coefficient

Small Company  Wells Fargo

Very good diversification

The 3 months correlation between Small and Wells is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Small Pany Value and Wells Fargo Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo Emerging and Small Company 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 Small Pany Value 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 Emerging has no effect on the direction of Small Company i.e., Small Company and Wells Fargo go up and down completely randomly.

Pair Corralation between Small Company and Wells Fargo

Assuming the 90 days horizon Small Pany Value is expected to under-perform the Wells Fargo. But the mutual fund apears to be less risky and, when comparing its historical volatility, Small Pany Value is 1.03 times less risky than Wells Fargo. The mutual fund trades about -0.08 of its potential returns per unit of risk. The Wells Fargo Emerging is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,638  in Wells Fargo Emerging on December 28, 2024 and sell it today you would earn a total of  186.00  from holding Wells Fargo Emerging or generate 7.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Small Pany Value  vs.  Wells Fargo Emerging

Small Pany Value

Risk-Adjusted Performance

Very Weak

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

Wells Fargo Emerging

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo Emerging are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Wells Fargo may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Small Company and Wells Fargo

The main advantage of trading using opposite Small Company and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Company 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 Small Pany Value and Wells Fargo Emerging 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.