Correlation Between Wells Fargo and Municipal Bond

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

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

Diversification Opportunities for Wells Fargo and Municipal Bond

0.78

Correlation Coefficient

Wells Fargo  Municipal Bond

Poor diversification

The 3 months correlation between WELLS and Municipal is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo Short Term and Municipal Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Municipal Bond 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 Short Term are associated (or correlated) with Municipal Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Municipal Bond has no effect on the direction of Wells Fargo i.e., Wells Fargo and Municipal Bond go up and down completely randomly.

Pair Corralation between Wells Fargo and Municipal Bond

Assuming the 90 days horizon Wells Fargo Short Term is expected to generate 0.76 times more return on investment than Municipal Bond. However, Wells Fargo Short Term is 1.31 times less risky than Municipal Bond. It trades about 0.15 of its potential returns per unit of risk. Municipal Bond Fund is currently generating about 0.04 per unit of risk. If you would invest  775.00  in Wells Fargo Short Term on December 22, 2024 and sell it today you would earn a total of  11.00  from holding Wells Fargo Short Term or generate 1.42% return on investment over 90 days.

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

Wells Fargo Short Term  vs.  Municipal Bond Fund

Wells Fargo Short

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo Short Term are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical indicators, Wells Fargo is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Municipal Bond

Risk-Adjusted Performance

Insignificant

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

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

The idea behind Wells Fargo Short Term and Municipal Bond 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.