Correlation Between Ab Small and Wells Fargo

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

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

Diversification Opportunities for Ab Small and Wells Fargo

0.27

Correlation Coefficient

Ab Small  Wells Fargo

Modest diversification

The 3 months correlation between SCYVX and Wells is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Ab Small Cap and Wells Fargo Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo Income and Ab Small 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 Ab Small Cap 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 Income has no effect on the direction of Ab Small i.e., Ab Small and Wells Fargo go up and down completely randomly.

Pair Corralation between Ab Small and Wells Fargo

Assuming the 90 days horizon Ab Small Cap is expected to generate 5.42 times more return on investment than Wells Fargo. However, Ab Small is 5.42 times more volatile than Wells Fargo Income. It trades about 0.04 of its potential returns per unit of risk. Wells Fargo Income is currently generating about 0.04 per unit of risk. If you would invest  1,382  in Ab Small Cap on September 25, 2024 and sell it today you would earn a total of  92.00  from holding Ab Small Cap or generate 6.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.21%
Values	Daily Returns

Ab Small Cap  vs.  Wells Fargo Income

Ab Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

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

Wells Fargo Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wells Fargo Income 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.

Pair Trading with Ab Small and Wells Fargo

The main advantage of trading using opposite Ab Small and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ab Small 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 Ab Small Cap and Wells Fargo Income 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.