Correlation Between China Construction and Wells Fargo
Can any of the company-specific risk be diversified away by investing in both China Construction 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 China Construction and Wells Fargo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Construction Bank and Wells Fargo, you can compare the effects of market volatilities on China Construction 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 China Construction with a short position of Wells Fargo. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Construction and Wells Fargo.
Diversification Opportunities for China Construction and Wells Fargo
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between China and Wells is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding China Construction Bank and Wells Fargo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo and China Construction 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 China Construction Bank 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 China Construction i.e., China Construction and Wells Fargo go up and down completely randomly.
Pair Corralation between China Construction and Wells Fargo
Assuming the 90 days horizon China Construction is expected to generate 7.35 times less return on investment than Wells Fargo. But when comparing it to its historical volatility, China Construction Bank is 1.07 times less risky than Wells Fargo. It trades about 0.05 of its potential returns per unit of risk. Wells Fargo is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest 4,969 in Wells Fargo on September 3, 2024 and sell it today you would earn a total of 2,341 from holding Wells Fargo or generate 47.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Construction Bank vs. Wells Fargo
Performance |
| Timeline |
| China Construction Bank |
| Wells Fargo |
China Construction and Wells Fargo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Construction and Wells Fargo
The main advantage of trading using opposite China Construction and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Construction 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.| China Construction vs. HSBC Holdings plc | China Construction vs. Bank of China | China Construction vs. Commonwealth Bank of |
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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