Correlation Between Wells Fargo and Municipal Bond
Can any of the company-specific risk be diversified away by investing in both Wells Fargo and Municipal Bond 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 Municipal Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wells Fargo Strategic and Municipal Bond Fund, you can compare the effects of market volatilities on Wells Fargo and Municipal Bond 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 Municipal Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wells Fargo and Municipal Bond.
Diversification Opportunities for Wells Fargo and Municipal Bond
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Wells and Municipal is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo Strategic and Municipal Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Municipal Bond 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 Strategic are associated (or correlated) with Municipal Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Municipal Bond has no effect on the direction of Wells Fargo i.e., Wells Fargo and Municipal Bond go up and down completely randomly.
Pair Corralation between Wells Fargo and Municipal Bond
Assuming the 90 days horizon Wells Fargo Strategic is expected to under-perform the Municipal Bond. But the mutual fund apears to be less risky and, when comparing its historical volatility, Wells Fargo Strategic is 1.72 times less risky than Municipal Bond. The mutual fund trades about -0.1 of its potential returns per unit of risk. The Municipal Bond Fund is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 987.00 in Municipal Bond Fund on August 30, 2024 and sell it today you would lose (1.00) from holding Municipal Bond Fund or give up 0.1% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wells Fargo Strategic vs. Municipal Bond Fund
Performance |
| Timeline |
| Wells Fargo Strategic |
| Municipal Bond |
Wells Fargo and Municipal Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wells Fargo and Municipal Bond
The main advantage of trading using opposite Wells Fargo and Municipal Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wells Fargo position performs unexpectedly, Municipal Bond 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 Municipal Bond will offset losses from the drop in Municipal Bond's long position.| Wells Fargo vs. Western Asset High | Wells Fargo vs. Metropolitan West High | Wells Fargo vs. Needham Aggressive Growth | Wells Fargo vs. Strategic Allocation Aggressive |
| Municipal Bond vs. Dunham Porategovernment Bond | Municipal Bond vs. Government Securities Fund | Municipal Bond vs. Short Term Government Fund | Municipal Bond vs. Blackrock Government Bond |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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