Correlation Between Ford and Wells Fargo
Can any of the company-specific risk be diversified away by investing in both Ford 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 Ford and Wells Fargo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Wells Fargo Global, you can compare the effects of market volatilities on Ford 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 Ford with a short position of Wells Fargo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Wells Fargo.
Diversification Opportunities for Ford and Wells Fargo
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Ford and Wells is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Wells Fargo Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo Global and Ford 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 Ford Motor 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 Global has no effect on the direction of Ford i.e., Ford and Wells Fargo go up and down completely randomly.
Pair Corralation between Ford and Wells Fargo
Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.59 times more return on investment than Wells Fargo. However, Ford is 1.59 times more volatile than Wells Fargo Global. It trades about 0.21 of its potential returns per unit of risk. Wells Fargo Global is currently generating about 0.03 per unit of risk. If you would invest 990.00 in Ford Motor on October 23, 2024 and sell it today you would earn a total of 53.00 from holding Ford Motor or generate 5.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 94.74% |
| Values | Daily Returns |
Ford Motor vs. Wells Fargo Global
Performance |
| Timeline |
| Ford Motor |
| Wells Fargo Global |
Ford and Wells Fargo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Wells Fargo
The main advantage of trading using opposite Ford and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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.The idea behind Ford Motor and Wells Fargo Global 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.| Wells Fargo vs. Wells Fargo Growth | Wells Fargo vs. Lazard Equity Centrated | Wells Fargo vs. Wells Fargo Discovery | Wells Fargo vs. Boston Partners All Cap |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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