Correlation Between Short-term Municipal and Wells Fargo
Can any of the company-specific risk be diversified away by investing in both Short-term Municipal 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 Short-term Municipal and Wells Fargo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Short Term Municipal Bond and Wells Fargo Short, you can compare the effects of market volatilities on Short-term Municipal 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 Short-term Municipal with a short position of Wells Fargo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short-term Municipal and Wells Fargo.
Diversification Opportunities for Short-term Municipal and Wells Fargo
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Short-term and Wells is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Short Term Municipal Bond and Wells Fargo Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo Short and Short-term Municipal 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 Short Term Municipal Bond 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 Short has no effect on the direction of Short-term Municipal i.e., Short-term Municipal and Wells Fargo go up and down completely randomly.
Pair Corralation between Short-term Municipal and Wells Fargo
Assuming the 90 days horizon Short-term Municipal is expected to generate 1.42 times less return on investment than Wells Fargo. But when comparing it to its historical volatility, Short Term Municipal Bond is 1.9 times less risky than Wells Fargo. It trades about 0.14 of its potential returns per unit of risk. Wells Fargo Short is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 814.00 in Wells Fargo Short on August 30, 2024 and sell it today you would earn a total of 78.00 from holding Wells Fargo Short or generate 9.58% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Short Term Municipal Bond vs. Wells Fargo Short
Performance |
| Timeline |
| Short Term Municipal |
| Wells Fargo Short |
Short-term Municipal and Wells Fargo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Short-term Municipal and Wells Fargo
The main advantage of trading using opposite Short-term Municipal and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short-term Municipal 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 Short Term Municipal Bond and Wells Fargo Short 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.
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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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