Correlation Between Wells Fargo and Payden Government

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

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

Diversification Opportunities for Wells Fargo and Payden Government

-0.39

Correlation Coefficient

Wells Fargo  Payden Government

Very good diversification

The 3 months correlation between Wells and Payden is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo Opportunity and Payden Government Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Payden Government 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 Opportunity are associated (or correlated) with Payden Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Payden Government has no effect on the direction of Wells Fargo i.e., Wells Fargo and Payden Government go up and down completely randomly.

Pair Corralation between Wells Fargo and Payden Government

Assuming the 90 days horizon Wells Fargo Opportunity is expected to generate 9.11 times more return on investment than Payden Government. However, Wells Fargo is 9.11 times more volatile than Payden Government Fund. It trades about -0.02 of its potential returns per unit of risk. Payden Government Fund is currently generating about -0.15 per unit of risk. If you would invest  5,347  in Wells Fargo Opportunity on September 16, 2024 and sell it today you would lose (100.00) from holding Wells Fargo Opportunity or give up 1.87% of portfolio value over 90 days.

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

Wells Fargo Opportunity  vs.  Payden Government Fund

Wells Fargo Opportunity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wells Fargo Opportunity 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.

Payden Government

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Wells Fargo Opportunity and Payden Government Fund 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..