Correlation Between Wells Fargo and California Limited-term

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

By analyzing existing cross correlation between Wells Fargo Advantage and California Limited Term Tax Free, you can compare the effects of market volatilities on Wells Fargo and California Limited-term 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 California Limited-term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wells Fargo and California Limited-term.

Diversification Opportunities for Wells Fargo and California Limited-term

0.95

Correlation Coefficient

Wells Fargo  California Limited-term

Almost no diversification

The 3 months correlation between Wells and California is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo Advantage and California Limited Term Tax Fr in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Limited Term 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 Advantage are associated (or correlated) with California Limited-term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Limited Term has no effect on the direction of Wells Fargo i.e., Wells Fargo and California Limited-term go up and down completely randomly.

Pair Corralation between Wells Fargo and California Limited-term

Assuming the 90 days horizon Wells Fargo is expected to generate 16.0 times less return on investment than California Limited-term. In addition to that, Wells Fargo is 1.31 times more volatile than California Limited Term Tax Free. It trades about 0.0 of its total potential returns per unit of risk. California Limited Term Tax Free is currently generating about 0.02 per unit of volatility. If you would invest  1,010  in California Limited Term Tax Free on December 29, 2024 and sell it today you would earn a total of  1.00  from holding California Limited Term Tax Free or generate 0.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.39%
Values	Daily Returns

Wells Fargo Advantage  vs.  California Limited Term Tax Fr

Wells Fargo Advantage

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wells Fargo Advantage 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.

California Limited Term

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in California Limited Term Tax Free are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, California Limited-term 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 California Limited-term

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

The idea behind Wells Fargo Advantage and California Limited Term Tax Free 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.