Correlation Between Index Fund and Wells Fargo

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

By analyzing existing cross correlation between Index Fund Class and Wells Fargo Growth, you can compare the effects of market volatilities on Index Fund and Wells Fargo 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 Index Fund with a short position of Wells Fargo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Index Fund and Wells Fargo.

Diversification Opportunities for Index Fund and Wells Fargo

0.92

Correlation Coefficient

Index Fund  Wells Fargo

Almost no diversification

The 3 months correlation between Index and Wells is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Index Fund Class and Wells Fargo Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo Growth and Index Fund 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 Index Fund Class are associated (or correlated) with Wells Fargo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wells Fargo Growth has no effect on the direction of Index Fund i.e., Index Fund and Wells Fargo go up and down completely randomly.

Pair Corralation between Index Fund and Wells Fargo

Assuming the 90 days horizon Index Fund Class is expected to generate 0.59 times more return on investment than Wells Fargo. However, Index Fund Class is 1.7 times less risky than Wells Fargo. It trades about -0.07 of its potential returns per unit of risk. Wells Fargo Growth is currently generating about -0.07 per unit of risk. If you would invest  5,488  in Index Fund Class on December 26, 2024 and sell it today you would lose (236.00) from holding Index Fund Class or give up 4.3% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.36%
Values	Daily Returns

Index Fund Class  vs.  Wells Fargo Growth

Index Fund Class

Risk-Adjusted Performance

Very Weak

Over the last 90 days Index Fund Class has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Index Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Wells Fargo Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wells Fargo Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Index Fund and Wells Fargo

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

The idea behind Index Fund Class and Wells Fargo Growth 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.