Correlation Between Wells Fargo and Enhanced

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

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

Diversification Opportunities for Wells Fargo and Enhanced

0.18

Correlation Coefficient

Wells Fargo  Enhanced

Average diversification

The 3 months correlation between Wells and Enhanced is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo Large and Enhanced Large Pany in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enhanced Large Pany 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 Large are associated (or correlated) with Enhanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enhanced Large Pany has no effect on the direction of Wells Fargo i.e., Wells Fargo and Enhanced go up and down completely randomly.

Pair Corralation between Wells Fargo and Enhanced

Assuming the 90 days horizon Wells Fargo is expected to generate 1.31 times less return on investment than Enhanced. In addition to that, Wells Fargo is 1.71 times more volatile than Enhanced Large Pany. It trades about 0.05 of its total potential returns per unit of risk. Enhanced Large Pany is currently generating about 0.11 per unit of volatility. If you would invest  988.00  in Enhanced Large Pany on October 11, 2024 and sell it today you would earn a total of  514.00  from holding Enhanced Large Pany or generate 52.02% return on investment over 90 days.

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

Wells Fargo Large  vs.  Enhanced Large Pany

Wells Fargo Large

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wells Fargo Large has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Enhanced Large Pany

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Enhanced Large Pany are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, Enhanced 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 Enhanced

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

The idea behind Wells Fargo Large and Enhanced Large Pany 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.