Correlation Between US Bancorp and Wells Fargo
Can any of the company-specific risk be diversified away by investing in both US Bancorp 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 US Bancorp and Wells Fargo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between US Bancorp and Wells Fargo, you can compare the effects of market volatilities on US Bancorp 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 US Bancorp with a short position of Wells Fargo. Check out your portfolio center. Please also check ongoing floating volatility patterns of US Bancorp and Wells Fargo.
Diversification Opportunities for US Bancorp and Wells Fargo
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between USB-PP and Wells is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding US Bancorp and Wells Fargo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo and US Bancorp 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 US Bancorp 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 US Bancorp i.e., US Bancorp and Wells Fargo go up and down completely randomly.
Pair Corralation between US Bancorp and Wells Fargo
Assuming the 90 days trading horizon US Bancorp is expected to generate 0.66 times more return on investment than Wells Fargo. However, US Bancorp is 1.51 times less risky than Wells Fargo. It trades about 0.01 of its potential returns per unit of risk. Wells Fargo is currently generating about -0.07 per unit of risk. If you would invest 2,486 in US Bancorp on August 27, 2024 and sell it today you would earn a total of 2.00 from holding US Bancorp or generate 0.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
US Bancorp vs. Wells Fargo
Performance |
| Timeline |
| US Bancorp |
| Wells Fargo |
US Bancorp and Wells Fargo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with US Bancorp and Wells Fargo
The main advantage of trading using opposite US Bancorp and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if US Bancorp 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 US Bancorp and Wells Fargo 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. Bank of America | Wells Fargo vs. Bank of America | Wells Fargo vs. Bank of America | Wells Fargo vs. Wells Fargo |
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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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