Correlation Between Wells Fargo and Diamond Hill

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

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

Diversification Opportunities for Wells Fargo and Diamond Hill

0.68

Correlation Coefficient

Wells Fargo  Diamond Hill

Poor diversification

The 3 months correlation between Wells and Diamond is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo Special and Diamond Hill All in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Hill All 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 Special are associated (or correlated) with Diamond Hill. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamond Hill All has no effect on the direction of Wells Fargo i.e., Wells Fargo and Diamond Hill go up and down completely randomly.

Pair Corralation between Wells Fargo and Diamond Hill

Assuming the 90 days horizon Wells Fargo Special is expected to under-perform the Diamond Hill. But the mutual fund apears to be less risky and, when comparing its historical volatility, Wells Fargo Special is 1.03 times less risky than Diamond Hill. The mutual fund trades about -0.18 of its potential returns per unit of risk. The Diamond Hill All is currently generating about -0.15 of returns per unit of risk over similar time horizon. If you would invest  2,676  in Diamond Hill All on December 1, 2024 and sell it today you would lose (278.00) from holding Diamond Hill All or give up 10.39% of portfolio value over 90 days.

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

Wells Fargo Special  vs.  Diamond Hill All

Wells Fargo Special

Risk-Adjusted Performance

Very Weak

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

Diamond Hill All

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diamond Hill All 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 Wells Fargo and Diamond Hill

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

The idea behind Wells Fargo Special and Diamond Hill All 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.