Correlation Between Regional Management and Wells Fargo
Can any of the company-specific risk be diversified away by investing in both Regional Management 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 Regional Management and Wells Fargo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Regional Management Corp and Wells Fargo Co, you can compare the effects of market volatilities on Regional Management 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 Regional Management with a short position of Wells Fargo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Regional Management and Wells Fargo.
Diversification Opportunities for Regional Management and Wells Fargo
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Regional and Wells is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Regional Management Corp and Wells Fargo Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo and Regional Management 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 Regional Management Corp 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 has no effect on the direction of Regional Management i.e., Regional Management and Wells Fargo go up and down completely randomly.
Pair Corralation between Regional Management and Wells Fargo
Allowing for the 90-day total investment horizon Regional Management Corp is expected to generate 7.47 times more return on investment than Wells Fargo. However, Regional Management is 7.47 times more volatile than Wells Fargo Co. It trades about 0.02 of its potential returns per unit of risk. Wells Fargo Co is currently generating about 0.06 per unit of risk. If you would invest 2,752 in Regional Management Corp on September 3, 2024 and sell it today you would earn a total of 301.00 from holding Regional Management Corp or generate 10.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Regional Management Corp vs. Wells Fargo Co
Performance |
| Timeline |
| Regional Management Corp |
| Wells Fargo |
Regional Management and Wells Fargo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Regional Management and Wells Fargo
The main advantage of trading using opposite Regional Management and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Regional Management 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.| Regional Management vs. SLM Corp Pb | Regional Management vs. FirstCash | Regional Management vs. Federal Agricultural Mortgage | Regional Management vs. Navient Corp |
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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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