Correlation Between Wells Fargo and Industrial

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

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

Diversification Opportunities for Wells Fargo and Industrial

0.43

Correlation Coefficient

Wells Fargo  Industrial

Very weak diversification

The 3 months correlation between Wells and Industrial is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo and Industrial and Commercial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrial and Commercial 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 Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrial and Commercial has no effect on the direction of Wells Fargo i.e., Wells Fargo and Industrial go up and down completely randomly.

Pair Corralation between Wells Fargo and Industrial

Assuming the 90 days trading horizon Wells Fargo is expected to generate 2.3 times less return on investment than Industrial. But when comparing it to its historical volatility, Wells Fargo is 6.11 times less risky than Industrial. It trades about 0.12 of its potential returns per unit of risk. Industrial and Commercial is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  58.00  in Industrial and Commercial on August 31, 2024 and sell it today you would earn a total of  3.00  from holding Industrial and Commercial or generate 5.17% return on investment over 90 days.

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

Wells Fargo  vs.  Industrial and Commercial

Wells Fargo

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, Wells Fargo is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Industrial and Commercial

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial and Commercial are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental drivers, Industrial may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Wells Fargo and Industrial

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

The idea behind Wells Fargo and Industrial and Commercial 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.