Correlation Between Dow Jones and Wells Fargo
Can any of the company-specific risk be diversified away by investing in both Dow Jones 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 Dow Jones and Wells Fargo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and Wells Fargo Growth, you can compare the effects of market volatilities on Dow Jones 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 Dow Jones with a short position of Wells Fargo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Wells Fargo.
Diversification Opportunities for Dow Jones and Wells Fargo
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Dow and WELLS is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Wells Fargo Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo Growth and Dow Jones 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 Dow Jones Industrial 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 Growth has no effect on the direction of Dow Jones i.e., Dow Jones and Wells Fargo go up and down completely randomly.
Pair Corralation between Dow Jones and Wells Fargo
Assuming the 90 days trading horizon Dow Jones is expected to generate 1.52 times less return on investment than Wells Fargo. But when comparing it to its historical volatility, Dow Jones Industrial is 1.67 times less risky than Wells Fargo. It trades about 0.08 of its potential returns per unit of risk. Wells Fargo Growth is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 3,125 in Wells Fargo Growth on August 26, 2024 and sell it today you would earn a total of 1,480 from holding Wells Fargo Growth or generate 47.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Wells Fargo Growth
Performance |
| Timeline |
Dow Jones and Wells Fargo Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Wells Fargo Growth
Pair trading matchups for Wells Fargo
Pair Trading with Dow Jones and Wells Fargo
The main advantage of trading using opposite Dow Jones and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones 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.| Dow Jones vs. MI Homes | Dow Jones vs. Franklin Street Properties | Dow Jones vs. Summit Hotel Properties | Dow Jones vs. Portillos |
| Wells Fargo vs. Jpmorgan Mid Cap | Wells Fargo vs. Jpmorgan International Value | Wells Fargo vs. Jpmorgan Small Cap | Wells Fargo vs. Wells Fargo Discovery |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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