Correlation Between Ultra Short and Wells Fargo

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

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

Diversification Opportunities for Ultra Short and Wells Fargo

-0.4

Correlation Coefficient

Ultra Short  Wells Fargo

Very good diversification

The 3 months correlation between Ultra and Wells is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Short Term Municipal 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 Ultra Short 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 Ultra Short Term Municipal 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 Ultra Short i.e., Ultra Short and Wells Fargo go up and down completely randomly.

Pair Corralation between Ultra Short and Wells Fargo

Assuming the 90 days horizon Ultra Short is expected to generate 2.11 times less return on investment than Wells Fargo. But when comparing it to its historical volatility, Ultra Short Term Municipal is 13.61 times less risky than Wells Fargo. It trades about 0.2 of its potential returns per unit of risk. Wells Fargo Emerging is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,386  in Wells Fargo Emerging on September 21, 2024 and sell it today you would earn a total of  298.00  from holding Wells Fargo Emerging or generate 12.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Ultra Short Term Municipal  vs.  Wells Fargo Emerging

Ultra Short Term

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Short Term Municipal are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Ultra Short 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

0 of 100

Very Weak

Over the last 90 days Wells Fargo Emerging has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic 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 Ultra Short and Wells Fargo

The main advantage of trading using opposite Ultra Short and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ultra Short 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 Ultra Short Term Municipal 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.