Correlation Between Wells Fargo and Europac Gold

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

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

Diversification Opportunities for Wells Fargo and Europac Gold

-0.36

Correlation Coefficient

Wells Fargo  Europac Gold

Very good diversification

The 3 months correlation between WELLS and Europac is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo Advantage and Europac Gold Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Europac Gold 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 Advantage are associated (or correlated) with Europac Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Europac Gold has no effect on the direction of Wells Fargo i.e., Wells Fargo and Europac Gold go up and down completely randomly.

Pair Corralation between Wells Fargo and Europac Gold

Assuming the 90 days horizon Wells Fargo Advantage is expected to under-perform the Europac Gold. But the mutual fund apears to be less risky and, when comparing its historical volatility, Wells Fargo Advantage is 1.37 times less risky than Europac Gold. The mutual fund trades about -0.13 of its potential returns per unit of risk. The Europac Gold Fund is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  916.00  in Europac Gold Fund on December 28, 2024 and sell it today you would earn a total of  240.00  from holding Europac Gold Fund or generate 26.2% return on investment over 90 days.

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

Wells Fargo Advantage  vs.  Europac Gold Fund

Wells Fargo Advantage

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wells Fargo Advantage 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.

Europac Gold

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Europac Gold Fund are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Europac Gold showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wells Fargo and Europac Gold

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

The idea behind Wells Fargo Advantage and Europac Gold Fund 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.