Correlation Between Wells Fargo and Ab Small

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Can any of the company-specific risk be diversified away by investing in both Wells Fargo and Ab Small 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 Ab Small 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 Ab Small Cap, you can compare the effects of market volatilities on Wells Fargo and Ab Small 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 Ab Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wells Fargo and Ab Small.

Diversification Opportunities for Wells Fargo and Ab Small

0.95
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Wells and QUAIX is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo Advantage and Ab Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab Small Cap 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 Ab Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab Small Cap has no effect on the direction of Wells Fargo i.e., Wells Fargo and Ab Small go up and down completely randomly.

Pair Corralation between Wells Fargo and Ab Small

Assuming the 90 days horizon Wells Fargo Advantage is expected to generate 0.96 times more return on investment than Ab Small. However, Wells Fargo Advantage is 1.04 times less risky than Ab Small. It trades about 0.08 of its potential returns per unit of risk. Ab Small Cap is currently generating about 0.07 per unit of risk. If you would invest  1,745  in Wells Fargo Advantage on October 24, 2024 and sell it today you would earn a total of  144.00  from holding Wells Fargo Advantage or generate 8.25% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Wells Fargo Advantage  vs.  Ab Small Cap

 Performance 
       Timeline  
Wells Fargo Advantage 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo Advantage are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Wells Fargo may actually be approaching a critical reversion point that can send shares even higher in February 2025.
Ab Small Cap 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Ab Small Cap are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Ab Small may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Wells Fargo and Ab Small Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Wells Fargo and Ab Small

The main advantage of trading using opposite Wells Fargo and Ab Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wells Fargo position performs unexpectedly, Ab Small 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 Ab Small will offset losses from the drop in Ab Small's long position.
The idea behind Wells Fargo Advantage and Ab Small Cap 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.
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.

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