Correlation Between Wells Fargo and Extended Market
Can any of the company-specific risk be diversified away by investing in both Wells Fargo and Extended Market 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 Extended Market into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wells Fargo Real and Extended Market Index, you can compare the effects of market volatilities on Wells Fargo and Extended Market 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 Extended Market. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wells Fargo and Extended Market.
Diversification Opportunities for Wells Fargo and Extended Market
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Wells and Extended is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo Real and Extended Market Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Extended Market Index 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 Real are associated (or correlated) with Extended Market. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Extended Market Index has no effect on the direction of Wells Fargo i.e., Wells Fargo and Extended Market go up and down completely randomly.
Pair Corralation between Wells Fargo and Extended Market
Assuming the 90 days horizon Wells Fargo Real is expected to generate 0.37 times more return on investment than Extended Market. However, Wells Fargo Real is 2.68 times less risky than Extended Market. It trades about 0.26 of its potential returns per unit of risk. Extended Market Index is currently generating about 0.05 per unit of risk. If you would invest 1,054 in Wells Fargo Real on September 13, 2024 and sell it today you would earn a total of 18.00 from holding Wells Fargo Real or generate 1.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wells Fargo Real vs. Extended Market Index
Performance |
| Timeline |
| Wells Fargo Real |
| Extended Market Index |
Wells Fargo and Extended Market Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wells Fargo and Extended Market
The main advantage of trading using opposite Wells Fargo and Extended Market positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wells Fargo position performs unexpectedly, Extended Market 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 Extended Market will offset losses from the drop in Extended Market's long position.| Wells Fargo vs. Small Pany Growth | Wells Fargo vs. Glg Intl Small | Wells Fargo vs. Kinetics Small Cap | Wells Fargo vs. Df Dent Small |
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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 Stocks Directory module to find actively traded stocks across global markets.
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