Correlation Between World Energy and Wells Fargo
Can any of the company-specific risk be diversified away by investing in both World Energy 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 World Energy and Wells Fargo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between World Energy Fund and Wells Fargo Government, you can compare the effects of market volatilities on World Energy 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 World Energy with a short position of Wells Fargo. Check out your portfolio center. Please also check ongoing floating volatility patterns of World Energy and Wells Fargo.
Diversification Opportunities for World Energy and Wells Fargo
0.11 | Correlation Coefficient |
Average diversification
The 3 months correlation between World and Wells is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding World Energy Fund and Wells Fargo Government in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo Government and World Energy 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 World Energy Fund 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 Government has no effect on the direction of World Energy i.e., World Energy and Wells Fargo go up and down completely randomly.
Pair Corralation between World Energy and Wells Fargo
Assuming the 90 days horizon World Energy Fund is expected to generate 6.64 times more return on investment than Wells Fargo. However, World Energy is 6.64 times more volatile than Wells Fargo Government. It trades about 0.07 of its potential returns per unit of risk. Wells Fargo Government is currently generating about 0.04 per unit of risk. If you would invest 1,469 in World Energy Fund on November 3, 2024 and sell it today you would earn a total of 37.00 from holding World Energy Fund or generate 2.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
World Energy Fund vs. Wells Fargo Government
Performance |
| Timeline |
| World Energy |
| Wells Fargo Government |
World Energy and Wells Fargo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with World Energy and Wells Fargo
The main advantage of trading using opposite World Energy and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if World Energy 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.| World Energy vs. Franklin Lifesmart Retirement | World Energy vs. Retirement Living Through | World Energy vs. American Funds Retirement | World Energy vs. Columbia Moderate Growth |
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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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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