Correlation Between First Trust and Wells Fargo
Can any of the company-specific risk be diversified away by investing in both First Trust 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 First Trust and Wells Fargo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Specialty and Wells Fargo Enterprise, you can compare the effects of market volatilities on First Trust 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 First Trust with a short position of Wells Fargo. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Wells Fargo.
Diversification Opportunities for First Trust and Wells Fargo
0.55 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between First and Wells is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Specialty and Wells Fargo Enterprise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo Enterprise and First Trust 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 First Trust Specialty 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 Enterprise has no effect on the direction of First Trust i.e., First Trust and Wells Fargo go up and down completely randomly.
Pair Corralation between First Trust and Wells Fargo
Considering the 90-day investment horizon First Trust is expected to generate 1.48 times less return on investment than Wells Fargo. But when comparing it to its historical volatility, First Trust Specialty is 2.0 times less risky than Wells Fargo. It trades about 0.36 of its potential returns per unit of risk. Wells Fargo Enterprise is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 6,328 in Wells Fargo Enterprise on August 30, 2024 and sell it today you would earn a total of 509.00 from holding Wells Fargo Enterprise or generate 8.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Specialty vs. Wells Fargo Enterprise
Performance |
| Timeline |
| First Trust Specialty |
| Wells Fargo Enterprise |
First Trust and Wells Fargo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Wells Fargo
The main advantage of trading using opposite First Trust and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust 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.| First Trust vs. Tekla Life Sciences | First Trust vs. Royce Value Closed | First Trust vs. Flaherty and Crumrine | First Trust vs. Aquagold International |
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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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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