Correlation Between GM and Wells Fargo
Can any of the company-specific risk be diversified away by investing in both GM 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 GM and Wells Fargo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Wells Fargo Ultra, you can compare the effects of market volatilities on GM 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 GM with a short position of Wells Fargo. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Wells Fargo.
Diversification Opportunities for GM and Wells Fargo
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and Wells is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Wells Fargo Ultra in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo Ultra and GM 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 General Motors 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 Ultra has no effect on the direction of GM i.e., GM and Wells Fargo go up and down completely randomly.
Pair Corralation between GM and Wells Fargo
Allowing for the 90-day total investment horizon General Motors is expected to generate 22.67 times more return on investment than Wells Fargo. However, GM is 22.67 times more volatile than Wells Fargo Ultra. It trades about 0.05 of its potential returns per unit of risk. Wells Fargo Ultra is currently generating about 0.27 per unit of risk. If you would invest 3,749 in General Motors on August 29, 2024 and sell it today you would earn a total of 1,801 from holding General Motors or generate 48.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Wells Fargo Ultra
Performance |
| Timeline |
| General Motors |
| Wells Fargo Ultra |
GM and Wells Fargo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Wells Fargo
The main advantage of trading using opposite GM and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors and Wells Fargo Ultra 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. Us Government Securities | Wells Fargo vs. Us Government Plus | Wells Fargo vs. Prudential Government Income | Wells Fargo vs. Dreyfus Government Cash |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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