Correlation Between New World and Wells Fargo
Can any of the company-specific risk be diversified away by investing in both New World 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 New World and Wells Fargo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between New World Fund and Wells Fargo Emerging, you can compare the effects of market volatilities on New World 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 New World with a short position of Wells Fargo. Check out your portfolio center. Please also check ongoing floating volatility patterns of New World and Wells Fargo.
Diversification Opportunities for New World and Wells Fargo
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between New and Wells is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding New World Fund and Wells Fargo Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo Emerging and New World 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 New World Fund 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 Emerging has no effect on the direction of New World i.e., New World and Wells Fargo go up and down completely randomly.
Pair Corralation between New World and Wells Fargo
Assuming the 90 days horizon New World is expected to generate 1.27 times less return on investment than Wells Fargo. But when comparing it to its historical volatility, New World Fund is 1.25 times less risky than Wells Fargo. It trades about 0.04 of its potential returns per unit of risk. Wells Fargo Emerging is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 1,991 in Wells Fargo Emerging on September 1, 2024 and sell it today you would earn a total of 126.00 from holding Wells Fargo Emerging or generate 6.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 99.47% |
| Values | Daily Returns |
New World Fund vs. Wells Fargo Emerging
Performance |
| Timeline |
| New World Fund |
| Wells Fargo Emerging |
New World and Wells Fargo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with New World and Wells Fargo
The main advantage of trading using opposite New World and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New World 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.| New World vs. Smallcap World Fund | New World vs. Investment Of America | New World vs. Europacific Growth Fund | New World vs. Capital World Growth |
| Wells Fargo vs. Wells Fargo Advantage | Wells Fargo vs. Wells Fargo Advantage | Wells Fargo vs. Wells Fargo Advantage | Wells Fargo vs. Wells Fargo Ultra |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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