Correlation Between Wells Fargo and Fidelity Advisor

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

By analyzing existing cross correlation between Wells Fargo Small and Fidelity Advisor Financial, you can compare the effects of market volatilities on Wells Fargo and Fidelity Advisor 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 Fidelity Advisor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wells Fargo and Fidelity Advisor.

Diversification Opportunities for Wells Fargo and Fidelity Advisor

0.88

Correlation Coefficient

Wells Fargo  Fidelity Advisor

Very poor diversification

The 3 months correlation between Wells and Fidelity is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo Small and Fidelity Advisor Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Advisor Fin 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 Small are associated (or correlated) with Fidelity Advisor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Advisor Fin has no effect on the direction of Wells Fargo i.e., Wells Fargo and Fidelity Advisor go up and down completely randomly.

Pair Corralation between Wells Fargo and Fidelity Advisor

Assuming the 90 days horizon Wells Fargo is expected to generate 1.74 times less return on investment than Fidelity Advisor. In addition to that, Wells Fargo is 1.05 times more volatile than Fidelity Advisor Financial. It trades about 0.05 of its total potential returns per unit of risk. Fidelity Advisor Financial is currently generating about 0.08 per unit of volatility. If you would invest  2,477  in Fidelity Advisor Financial on September 18, 2024 and sell it today you would earn a total of  1,430  from holding Fidelity Advisor Financial or generate 57.73% return on investment over 90 days.

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

Wells Fargo Small  vs.  Fidelity Advisor Financial

Wells Fargo Small

Risk-Adjusted Performance

0 of 100

Very Weak

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

Fidelity Advisor Fin

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Advisor Financial are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental drivers, Fidelity Advisor showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wells Fargo and Fidelity Advisor

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

The idea behind Wells Fargo Small and Fidelity Advisor Financial 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.