Correlation Between Wells Fargo and Cajxx

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

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

Diversification Opportunities for Wells Fargo and Cajxx

-0.74

Correlation Coefficient

Wells Fargo  Cajxx

Pay attention - limited upside

The 3 months correlation between Wells and Cajxx is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo Ultra and Cajxx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cajxx 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 Ultra are associated (or correlated) with Cajxx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cajxx has no effect on the direction of Wells Fargo i.e., Wells Fargo and Cajxx go up and down completely randomly.

Pair Corralation between Wells Fargo and Cajxx

Assuming the 90 days horizon Wells Fargo is expected to generate 2218.36 times less return on investment than Cajxx. But when comparing it to its historical volatility, Wells Fargo Ultra is 976.37 times less risky than Cajxx. It trades about 0.05 of its potential returns per unit of risk. Cajxx is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  492.00  in Cajxx on September 29, 2024 and sell it today you would lose (392.00) from holding Cajxx or give up 79.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

Wells Fargo Ultra  vs.  Cajxx

Wells Fargo Ultra

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo Ultra are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. 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.

Cajxx

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cajxx are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Cajxx showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wells Fargo and Cajxx

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

The idea behind Wells Fargo Ultra and Cajxx 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.