Correlation Between Wells Fargo and Franklin Mutual
Can any of the company-specific risk be diversified away by investing in both Wells Fargo and Franklin Mutual 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 Franklin Mutual 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 Franklin Mutual European, you can compare the effects of market volatilities on Wells Fargo and Franklin Mutual 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 Franklin Mutual. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wells Fargo and Franklin Mutual.
Diversification Opportunities for Wells Fargo and Franklin Mutual
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Wells and Franklin is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo Advantage and Franklin Mutual European in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Mutual European 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 Franklin Mutual. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Mutual European has no effect on the direction of Wells Fargo i.e., Wells Fargo and Franklin Mutual go up and down completely randomly.
Pair Corralation between Wells Fargo and Franklin Mutual
Assuming the 90 days horizon Wells Fargo Advantage is expected to generate 1.76 times more return on investment than Franklin Mutual. However, Wells Fargo is 1.76 times more volatile than Franklin Mutual European. It trades about 0.51 of its potential returns per unit of risk. Franklin Mutual European is currently generating about 0.37 per unit of risk. If you would invest 5,872 in Wells Fargo Advantage on November 8, 2024 and sell it today you would earn a total of 1,002 from holding Wells Fargo Advantage or generate 17.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wells Fargo Advantage vs. Franklin Mutual European
Performance |
| Timeline |
| Wells Fargo Advantage |
| Franklin Mutual European |
Wells Fargo and Franklin Mutual Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wells Fargo and Franklin Mutual
The main advantage of trading using opposite Wells Fargo and Franklin Mutual positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wells Fargo position performs unexpectedly, Franklin Mutual 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 Franklin Mutual will offset losses from the drop in Franklin Mutual's long position.| Wells Fargo vs. Wells Fargo Advantage | Wells Fargo vs. Wells Fargo Advantage | Wells Fargo vs. Franklin Gold Precious | Wells Fargo vs. Precious Metals Ultrasector |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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