Correlation Between Wells Fargo and Charles Schwab

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

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

Diversification Opportunities for Wells Fargo and Charles Schwab

0.94

Correlation Coefficient

Wells Fargo  Charles Schwab

Almost no diversification

The 3 months correlation between Wells and Charles is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo and The Charles Schwab in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Charles Schwab 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 are associated (or correlated) with Charles Schwab. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Charles Schwab has no effect on the direction of Wells Fargo i.e., Wells Fargo and Charles Schwab go up and down completely randomly.

Pair Corralation between Wells Fargo and Charles Schwab

Assuming the 90 days trading horizon Wells Fargo is expected to generate 1.06 times more return on investment than Charles Schwab. However, Wells Fargo is 1.06 times more volatile than The Charles Schwab. It trades about -0.19 of its potential returns per unit of risk. The Charles Schwab is currently generating about -0.22 per unit of risk. If you would invest  2,040  in Wells Fargo on September 24, 2024 and sell it today you would lose (212.00) from holding Wells Fargo or give up 10.39% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.46%
Values	Daily Returns

Wells Fargo  vs.  The Charles Schwab

Wells Fargo

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wells Fargo has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest sluggish performance, the Preferred Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Charles Schwab

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Charles Schwab has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Preferred Stock's forward-looking indicators remain steady and the new chaos on Wall Street may also be a sign of medium-term gains for the company stakeholders.

Pair Trading with Wells Fargo and Charles Schwab

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

The idea behind Wells Fargo and The Charles Schwab 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.

Check out your portfolio center.

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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.