Correlation Between Wells Fargo and California Tax-free
Can any of the company-specific risk be diversified away by investing in both Wells Fargo and California Tax-free 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 California Tax-free into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wells Fargo Advantage and California Tax Free Fund, you can compare the effects of market volatilities on Wells Fargo and California Tax-free 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 California Tax-free. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wells Fargo and California Tax-free.
Diversification Opportunities for Wells Fargo and California Tax-free
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Wells and California is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo Advantage and California Tax Free Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Tax Free 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 Advantage are associated (or correlated) with California Tax-free. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Tax Free has no effect on the direction of Wells Fargo i.e., Wells Fargo and California Tax-free go up and down completely randomly.
Pair Corralation between Wells Fargo and California Tax-free
Assuming the 90 days horizon Wells Fargo is expected to generate 1.29 times less return on investment than California Tax-free. But when comparing it to its historical volatility, Wells Fargo Advantage is 1.55 times less risky than California Tax-free. It trades about 0.15 of its potential returns per unit of risk. California Tax Free Fund is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 1,058 in California Tax Free Fund on September 1, 2024 and sell it today you would earn a total of 36.00 from holding California Tax Free Fund or generate 3.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wells Fargo Advantage vs. California Tax Free Fund
Performance |
| Timeline |
| Wells Fargo Advantage |
| California Tax Free |
Wells Fargo and California Tax-free Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wells Fargo and California Tax-free
The main advantage of trading using opposite Wells Fargo and California Tax-free positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wells Fargo position performs unexpectedly, California Tax-free 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 California Tax-free will offset losses from the drop in California Tax-free's long position.| Wells Fargo vs. M Large Cap | Wells Fargo vs. Dodge Cox Stock | Wells Fargo vs. Aqr Large Cap | Wells Fargo vs. Transamerica Large Cap |
| California Tax-free vs. Wells Fargo Advantage | California Tax-free vs. Wells Fargo Advantage | California Tax-free vs. Wells Fargo Advantage | California Tax-free vs. Wells Fargo Ultra |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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