Correlation Between Wells Fargo and Coastal Financial

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

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

Diversification Opportunities for Wells Fargo and Coastal Financial

0.99

Correlation Coefficient

Wells Fargo  Coastal Financial

No risk reduction

The 3 months correlation between Wells and Coastal is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo and Coastal Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coastal Financial Corp 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 Coastal Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coastal Financial Corp has no effect on the direction of Wells Fargo i.e., Wells Fargo and Coastal Financial go up and down completely randomly.

Pair Corralation between Wells Fargo and Coastal Financial

Considering the 90-day investment horizon Wells Fargo is expected to generate 1.26 times less return on investment than Coastal Financial. But when comparing it to its historical volatility, Wells Fargo is 1.05 times less risky than Coastal Financial. It trades about 0.24 of its potential returns per unit of risk. Coastal Financial Corp is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  4,919  in Coastal Financial Corp on September 12, 2024 and sell it today you would earn a total of  2,661  from holding Coastal Financial Corp or generate 54.1% return on investment over 90 days.

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

Wells Fargo  vs.  Coastal Financial Corp

Wells Fargo

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Wells Fargo exhibited solid returns over the last few months and may actually be approaching a breakup point.

Coastal Financial Corp

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Coastal Financial Corp are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating fundamental indicators, Coastal Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wells Fargo and Coastal Financial

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

The idea behind Wells Fargo and Coastal Financial Corp 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.