Correlation Between Wells Fargo and Index Fund

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

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

Diversification Opportunities for Wells Fargo and Index Fund

0.92

Correlation Coefficient

Wells Fargo  Index Fund

Almost no diversification

The 3 months correlation between Wells and Index is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo Growth and Index Fund Administrator in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Index Fund Administrator 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 Growth are associated (or correlated) with Index Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Index Fund Administrator has no effect on the direction of Wells Fargo i.e., Wells Fargo and Index Fund go up and down completely randomly.

Pair Corralation between Wells Fargo and Index Fund

Assuming the 90 days horizon Wells Fargo Growth is expected to under-perform the Index Fund. In addition to that, Wells Fargo is 3.46 times more volatile than Index Fund Administrator. It trades about -0.23 of its total potential returns per unit of risk. Index Fund Administrator is currently generating about -0.22 per unit of volatility. If you would invest  5,877  in Index Fund Administrator on October 11, 2024 and sell it today you would lose (492.00) from holding Index Fund Administrator or give up 8.37% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.24%
Values	Daily Returns

Wells Fargo Growth  vs.  Index Fund Administrator

Wells Fargo Growth

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wells Fargo Growth 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 basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Index Fund Administrator

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Index Fund Administrator has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Index Fund 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 Index Fund

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

The idea behind Wells Fargo Growth and Index Fund Administrator 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.