Correlation Between American Balanced and Wells Fargo
Can any of the company-specific risk be diversified away by investing in both American Balanced 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 American Balanced and Wells Fargo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Balanced Fund and Wells Fargo Special, you can compare the effects of market volatilities on American Balanced 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 American Balanced with a short position of Wells Fargo. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Balanced and Wells Fargo.
Diversification Opportunities for American Balanced and Wells Fargo
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and WELLS is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced Fund and Wells Fargo Special in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo Special and American Balanced 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 American Balanced 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 Special has no effect on the direction of American Balanced i.e., American Balanced and Wells Fargo go up and down completely randomly.
Pair Corralation between American Balanced and Wells Fargo
Assuming the 90 days horizon American Balanced is expected to generate 3.68 times less return on investment than Wells Fargo. But when comparing it to its historical volatility, American Balanced Fund is 1.5 times less risky than Wells Fargo. It trades about 0.11 of its potential returns per unit of risk. Wells Fargo Special is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 5,271 in Wells Fargo Special on August 30, 2024 and sell it today you would earn a total of 252.00 from holding Wells Fargo Special or generate 4.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
American Balanced Fund vs. Wells Fargo Special
Performance |
| Timeline |
| American Balanced |
| Wells Fargo Special |
American Balanced and Wells Fargo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Balanced and Wells Fargo
The main advantage of trading using opposite American Balanced and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Balanced 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.| American Balanced vs. Washington Mutual Investors | American Balanced vs. New Perspective Fund | American Balanced vs. Amcap Fund Class | American Balanced vs. Growth Fund Of |
| Wells Fargo vs. Wells Fargo Advantage | Wells Fargo vs. New World Fund | Wells Fargo vs. Janus Enterprise Fund | Wells Fargo vs. Mfs Value Fund |
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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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