Correlation Between Wells Fargo and Eastern Bankshares

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

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

Diversification Opportunities for Wells Fargo and Eastern Bankshares

0.91

Correlation Coefficient

Wells Fargo  Eastern Bankshares

Almost no diversification

The 3 months correlation between Wells and Eastern is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo and Eastern Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern Bankshares 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 Eastern Bankshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern Bankshares has no effect on the direction of Wells Fargo i.e., Wells Fargo and Eastern Bankshares go up and down completely randomly.

Pair Corralation between Wells Fargo and Eastern Bankshares

Considering the 90-day investment horizon Wells Fargo is expected to generate 1.2 times more return on investment than Eastern Bankshares. However, Wells Fargo is 1.2 times more volatile than Eastern Bankshares. It trades about -0.05 of its potential returns per unit of risk. Eastern Bankshares is currently generating about -0.19 per unit of risk. If you would invest  7,260  in Wells Fargo on September 13, 2024 and sell it today you would lose (100.50) from holding Wells Fargo or give up 1.38% of portfolio value over 90 days.

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

Wells Fargo  vs.  Eastern Bankshares

Wells Fargo

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo are ranked lower than 17 (%) 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.

Eastern Bankshares

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eastern Bankshares are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental drivers, Eastern Bankshares exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wells Fargo and Eastern Bankshares

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

The idea behind Wells Fargo and Eastern Bankshares 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.