Correlation Between Wells Fargo and Ribbon Communications

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

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

Diversification Opportunities for Wells Fargo and Ribbon Communications

-0.09

Correlation Coefficient

Wells Fargo  Ribbon Communications

Good diversification

The 3 months correlation between Wells and Ribbon is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding West Fraser Timber and Ribbon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ribbon Communications 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 West Fraser Timber are associated (or correlated) with Ribbon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ribbon Communications has no effect on the direction of Wells Fargo i.e., Wells Fargo and Ribbon Communications go up and down completely randomly.

Pair Corralation between Wells Fargo and Ribbon Communications

If you would invest  262.00  in Ribbon Communications on October 14, 2024 and sell it today you would earn a total of  122.00  from holding Ribbon Communications or generate 46.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	0.4%
Values	Daily Returns

West Fraser Timber  vs.  Ribbon Communications

West Fraser Timber

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days West Fraser Timber has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Ribbon Communications

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ribbon Communications are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Ribbon Communications reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wells Fargo and Ribbon Communications

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

The idea behind West Fraser Timber and Ribbon Communications 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.