Correlation Between Wells Fargo and L Abbett

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

Diversification Opportunities for Wells Fargo and L Abbett

0.86

Correlation Coefficient

Wells Fargo  L Abbett

Very poor diversification

The 3 months correlation between Wells and LGLSX is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo Ultra and L Abbett Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on L Abbett Growth 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 L Abbett. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of L Abbett Growth has no effect on the direction of Wells Fargo i.e., Wells Fargo and L Abbett go up and down completely randomly.

Pair Corralation between Wells Fargo and L Abbett

Assuming the 90 days horizon Wells Fargo is expected to generate 10.62 times less return on investment than L Abbett. But when comparing it to its historical volatility, Wells Fargo Ultra is 20.96 times less risky than L Abbett. It trades about 0.22 of its potential returns per unit of risk. L Abbett Growth is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,438  in L Abbett Growth on September 16, 2024 and sell it today you would earn a total of  2,457  from holding L Abbett Growth or generate 100.78% return on investment over 90 days.

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

Wells Fargo Ultra  vs.  L Abbett Growth

Wells Fargo Ultra

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo Ultra are ranked lower than 12 (%) 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.

L Abbett Growth

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in L Abbett Growth are ranked lower than 21 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, L Abbett showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wells Fargo and L Abbett

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

The idea behind Wells Fargo Ultra and L Abbett Growth 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..