Correlation Between Wells Fargo and Transamerica Intermediate

Can any of the company-specific risk be diversified away by investing in both Wells Fargo and Transamerica Intermediate 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 Transamerica Intermediate 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 Transamerica Intermediate Muni, you can compare the effects of market volatilities on Wells Fargo and Transamerica Intermediate 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 Transamerica Intermediate. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wells Fargo and Transamerica Intermediate.

Diversification Opportunities for Wells Fargo and Transamerica Intermediate

0.05

Correlation Coefficient

Wells Fargo  Transamerica Intermediate

Significant diversification

The 3 months correlation between Wells and Transamerica is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo Large and Transamerica Intermediate Muni in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Intermediate 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 Transamerica Intermediate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica Intermediate has no effect on the direction of Wells Fargo i.e., Wells Fargo and Transamerica Intermediate go up and down completely randomly.

Pair Corralation between Wells Fargo and Transamerica Intermediate

Assuming the 90 days horizon Wells Fargo Large is expected to under-perform the Transamerica Intermediate. In addition to that, Wells Fargo is 7.14 times more volatile than Transamerica Intermediate Muni. It trades about -0.02 of its total potential returns per unit of risk. Transamerica Intermediate Muni is currently generating about -0.02 per unit of volatility. If you would invest  1,085  in Transamerica Intermediate Muni on September 18, 2024 and sell it today you would lose (4.00) from holding Transamerica Intermediate Muni or give up 0.37% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Wells Fargo Large  vs.  Transamerica Intermediate Muni

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 fairly strong technical and fundamental indicators, Wells Fargo is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Transamerica Intermediate

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Wells Fargo Large and Transamerica Intermediate Muni 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.