Correlation Between Wells Fargo and Palmer Square

Can any of the company-specific risk be diversified away by investing in both Wells Fargo and Palmer Square 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 Palmer Square 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 Palmer Square Income, you can compare the effects of market volatilities on Wells Fargo and Palmer Square 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 Palmer Square. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wells Fargo and Palmer Square.

Diversification Opportunities for Wells Fargo and Palmer Square

-0.62

Correlation Coefficient

Wells Fargo  Palmer Square

Excellent diversification

The 3 months correlation between Wells and Palmer is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo Special and Palmer Square Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Palmer Square Income 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 Palmer Square. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Palmer Square Income has no effect on the direction of Wells Fargo i.e., Wells Fargo and Palmer Square go up and down completely randomly.

Pair Corralation between Wells Fargo and Palmer Square

Assuming the 90 days horizon Wells Fargo Special is expected to under-perform the Palmer Square. In addition to that, Wells Fargo is 21.87 times more volatile than Palmer Square Income. It trades about -0.17 of its total potential returns per unit of risk. Palmer Square Income is currently generating about 0.49 per unit of volatility. If you would invest  1,001  in Palmer Square Income on December 2, 2024 and sell it today you would earn a total of  15.00  from holding Palmer Square Income or generate 1.5% return on investment over 90 days.

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

Wells Fargo Special  vs.  Palmer Square Income

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 basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Palmer Square Income

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Palmer Square Income are ranked lower than 38 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Palmer Square 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 Palmer Square

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

The idea behind Wells Fargo Special and Palmer Square Income 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..