Correlation Between Wilmington Trust and Wells Fargo

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

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

Diversification Opportunities for Wilmington Trust and Wells Fargo

0.99

Correlation Coefficient

Wilmington Trust  Wells Fargo

No risk reduction

The 3 months correlation between Wilmington and Wells is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Wilmington Trust Retirement and Wells Fargo Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo Small and Wilmington Trust 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 Wilmington Trust Retirement 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 Small has no effect on the direction of Wilmington Trust i.e., Wilmington Trust and Wells Fargo go up and down completely randomly.

Pair Corralation between Wilmington Trust and Wells Fargo

Assuming the 90 days trading horizon Wilmington Trust Retirement is expected to generate 0.99 times more return on investment than Wells Fargo. However, Wilmington Trust Retirement is 1.01 times less risky than Wells Fargo. It trades about -0.06 of its potential returns per unit of risk. Wells Fargo Small is currently generating about -0.08 per unit of risk. If you would invest  32,345  in Wilmington Trust Retirement on December 28, 2024 and sell it today you would lose (1,426) from holding Wilmington Trust Retirement or give up 4.41% of portfolio value over 90 days.

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

Wilmington Trust Retirement  vs.  Wells Fargo Small

Wilmington Trust Ret

Risk-Adjusted Performance

Very Weak

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

Wells Fargo Small

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wells Fargo Small has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward-looking 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 Wilmington Trust and Wells Fargo

The main advantage of trading using opposite Wilmington Trust and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wilmington Trust 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 Wilmington Trust Retirement and Wells Fargo Small 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.