Correlation Between Western Asset and Wells Fargo
Can any of the company-specific risk be diversified away by investing in both Western Asset 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 Western Asset and Wells Fargo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Western Asset High and Wells Fargo Premier, you can compare the effects of market volatilities on Western Asset 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 Western Asset with a short position of Wells Fargo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and Wells Fargo.
Diversification Opportunities for Western Asset and Wells Fargo
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Western and Wells is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset High and Wells Fargo Premier in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo Premier and Western Asset 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 Western Asset High 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 Premier has no effect on the direction of Western Asset i.e., Western Asset and Wells Fargo go up and down completely randomly.
Pair Corralation between Western Asset and Wells Fargo
Assuming the 90 days horizon Western Asset is expected to generate 19.82 times less return on investment than Wells Fargo. But when comparing it to its historical volatility, Western Asset High is 7.87 times less risky than Wells Fargo. It trades about 0.05 of its potential returns per unit of risk. Wells Fargo Premier is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 1,555 in Wells Fargo Premier on September 12, 2024 and sell it today you would earn a total of 45.00 from holding Wells Fargo Premier or generate 2.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Western Asset High vs. Wells Fargo Premier
Performance |
| Timeline |
| Western Asset High |
| Wells Fargo Premier |
Western Asset and Wells Fargo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Asset and Wells Fargo
The main advantage of trading using opposite Western Asset and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset 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.| Western Asset vs. SCOR PK | Western Asset vs. Morningstar Unconstrained Allocation | Western Asset vs. Via Renewables | Western Asset vs. Bondbloxx ETF Trust |
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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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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