Correlation Between Wells Fargo and First American

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

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

Diversification Opportunities for Wells Fargo and First American

0.0

Correlation Coefficient

Wells Fargo  First American

Pay attention - limited upside

The 3 months correlation between Wells and First is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo Funds and First American Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First American Funds 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 Funds are associated (or correlated) with First American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First American Funds has no effect on the direction of Wells Fargo i.e., Wells Fargo and First American go up and down completely randomly.

Pair Corralation between Wells Fargo and First American

Assuming the 90 days horizon Wells Fargo is expected to generate 38.23 times less return on investment than First American. But when comparing it to its historical volatility, Wells Fargo Funds is 157.58 times less risky than First American. It trades about 0.11 of its potential returns per unit of risk. First American Funds is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  368.00  in First American Funds on December 2, 2024 and sell it today you would lose (268.00) from holding First American Funds or give up 72.83% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	98.8%
Values	Daily Returns

Wells Fargo Funds  vs.  First American Funds

Wells Fargo Funds

Risk-Adjusted Performance

Very Weak

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

First American Funds

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Wells Fargo and First American

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

The idea behind Wells Fargo Funds and First American Funds 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.