Correlation Between BJs Restaurants and Wells Fargo

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

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

Diversification Opportunities for BJs Restaurants and Wells Fargo

0.6

Correlation Coefficient

BJs Restaurants  Wells Fargo

Poor diversification

The 3 months correlation between BJs and Wells is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding BJs Restaurants and Wells Fargo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo and BJs Restaurants 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 BJs Restaurants are associated (or correlated) with Wells Fargo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wells Fargo has no effect on the direction of BJs Restaurants i.e., BJs Restaurants and Wells Fargo go up and down completely randomly.

Pair Corralation between BJs Restaurants and Wells Fargo

Assuming the 90 days trading horizon BJs Restaurants is expected to generate 9.2 times less return on investment than Wells Fargo. In addition to that, BJs Restaurants is 1.08 times more volatile than Wells Fargo. It trades about 0.0 of its total potential returns per unit of risk. Wells Fargo is currently generating about 0.02 per unit of volatility. If you would invest  6,765  in Wells Fargo on December 28, 2024 and sell it today you would earn a total of  101.00  from holding Wells Fargo or generate 1.49% return on investment over 90 days.

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

BJs Restaurants  vs.  Wells Fargo

BJs Restaurants

Risk-Adjusted Performance

Very Weak

Over the last 90 days BJs Restaurants has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, BJs Restaurants is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Wells Fargo

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Wells Fargo is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with BJs Restaurants and Wells Fargo

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

The idea behind BJs Restaurants and Wells Fargo 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.