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 International, 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

-0.2

Correlation Coefficient

Small Company  Wells Fargo

Good diversification

The 3 months correlation between Small and WELLS is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Small Pany Value and Wells Fargo International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo International 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 International 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. In addition to that, Small Company is 1.34 times more volatile than Wells Fargo International. It trades about -0.27 of its total potential returns per unit of risk. Wells Fargo International is currently generating about 0.38 per unit of volatility. If you would invest  1,290  in Wells Fargo International on December 4, 2024 and sell it today you would earn a total of  80.00  from holding Wells Fargo International or generate 6.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Small Pany Value  vs.  Wells Fargo International

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 weak performance in the last few months, the Fund's technical and fundamental 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.

Wells Fargo International

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo International are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental 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 International 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.