Correlation Between Small Company and Wells Fargo
Can any of the company-specific risk be diversified away by investing in both Small Company 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 Small Company and Wells Fargo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Pany Growth and Wells Fargo Enterprise, you can compare the effects of market volatilities on Small Company 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 Small Company with a short position of Wells Fargo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Company and Wells Fargo.
Diversification Opportunities for Small Company and Wells Fargo
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Small and Wells is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Small Pany Growth and Wells Fargo Enterprise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo Enterprise and Small Company 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 Small Pany Growth 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 Enterprise has no effect on the direction of Small Company i.e., Small Company and Wells Fargo go up and down completely randomly.
Pair Corralation between Small Company and Wells Fargo
Assuming the 90 days horizon Small Company is expected to generate 1.38 times less return on investment than Wells Fargo. But when comparing it to its historical volatility, Small Pany Growth is 1.5 times less risky than Wells Fargo. It trades about 0.24 of its potential returns per unit of risk. Wells Fargo Enterprise is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest 5,313 in Wells Fargo Enterprise on November 3, 2024 and sell it today you would earn a total of 329.00 from holding Wells Fargo Enterprise or generate 6.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Pany Growth vs. Wells Fargo Enterprise
Performance |
| Timeline |
| Small Pany Growth |
| Wells Fargo Enterprise |
Small Company and Wells Fargo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Company and Wells Fargo
The main advantage of trading using opposite Small Company and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Company 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.| Small Company vs. Wells Fargo Special | Small Company vs. Champlain Small | Small Company vs. Wells Fargo Emerging | Small Company vs. The Hartford Midcap |
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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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