Correlation Between Transamerica Large and Wells Fargo

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

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

Diversification Opportunities for Transamerica Large and Wells Fargo

0.06

Correlation Coefficient

Transamerica Large  Wells Fargo

Significant diversification

The 3 months correlation between Transamerica and Wells is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica Large Cap and Wells Fargo High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo High and Transamerica Large 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 Transamerica Large Cap 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 High has no effect on the direction of Transamerica Large i.e., Transamerica Large and Wells Fargo go up and down completely randomly.

Pair Corralation between Transamerica Large and Wells Fargo

Assuming the 90 days horizon Transamerica Large Cap is expected to under-perform the Wells Fargo. In addition to that, Transamerica Large is 3.19 times more volatile than Wells Fargo High. It trades about -0.24 of its total potential returns per unit of risk. Wells Fargo High is currently generating about 0.08 per unit of volatility. If you would invest  301.00  in Wells Fargo High on October 7, 2024 and sell it today you would earn a total of  2.00  from holding Wells Fargo High or generate 0.66% return on investment over 90 days.

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

Transamerica Large Cap  vs.  Wells Fargo High

Transamerica Large Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transamerica Large Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Transamerica Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Wells Fargo High

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo High are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. 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 Transamerica Large and Wells Fargo

The main advantage of trading using opposite Transamerica Large and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transamerica Large 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 Transamerica Large Cap and Wells Fargo High 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.