Correlation Between Wells Fargo and US Bancorp
Can any of the company-specific risk be diversified away by investing in both Wells Fargo and US Bancorp 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 Wells Fargo and US Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wells Fargo and US Bancorp, you can compare the effects of market volatilities on Wells Fargo and US Bancorp 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 Wells Fargo with a short position of US Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wells Fargo and US Bancorp.
Diversification Opportunities for Wells Fargo and US Bancorp
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Wells and USB-PQ is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo and US Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Bancorp and Wells Fargo 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 Wells Fargo are associated (or correlated) with US Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp has no effect on the direction of Wells Fargo i.e., Wells Fargo and US Bancorp go up and down completely randomly.
Pair Corralation between Wells Fargo and US Bancorp
Assuming the 90 days trading horizon Wells Fargo is expected to generate 0.68 times more return on investment than US Bancorp. However, Wells Fargo is 1.46 times less risky than US Bancorp. It trades about -0.18 of its potential returns per unit of risk. US Bancorp is currently generating about -0.13 per unit of risk. If you would invest 2,007 in Wells Fargo on August 24, 2024 and sell it today you would lose (69.00) from holding Wells Fargo or give up 3.44% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wells Fargo vs. US Bancorp
Performance |
| Timeline |
| Wells Fargo |
| US Bancorp |
Wells Fargo and US Bancorp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wells Fargo and US Bancorp
The main advantage of trading using opposite Wells Fargo and US Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wells Fargo position performs unexpectedly, US Bancorp 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 US Bancorp will offset losses from the drop in US Bancorp's long position.| Wells Fargo vs. JPMorgan Chase Co | Wells Fargo vs. JPMorgan Chase Co | Wells Fargo vs. Bank of America | Wells Fargo vs. Wells Fargo |
| US Bancorp vs. US Bancorp | US Bancorp vs. US Bancorp | US Bancorp vs. Truist Financial | US Bancorp vs. JPMorgan Chase Co |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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