Correlation Between Wells Fargo and Small Cap
Can any of the company-specific risk be diversified away by investing in both Wells Fargo and Small Cap 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 Small Cap 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 Small Cap Stock, you can compare the effects of market volatilities on Wells Fargo and Small Cap 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 Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wells Fargo and Small Cap.
Diversification Opportunities for Wells Fargo and Small Cap
0.28 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Wells and Small is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo Strategic and Small Cap Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Stock 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 Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Stock has no effect on the direction of Wells Fargo i.e., Wells Fargo and Small Cap go up and down completely randomly.
Pair Corralation between Wells Fargo and Small Cap
Assuming the 90 days horizon Wells Fargo Strategic is expected to generate 0.11 times more return on investment than Small Cap. However, Wells Fargo Strategic is 9.11 times less risky than Small Cap. It trades about 0.32 of its potential returns per unit of risk. Small Cap Stock is currently generating about -0.04 per unit of risk. If you would invest 884.00 in Wells Fargo Strategic on September 13, 2024 and sell it today you would earn a total of 6.00 from holding Wells Fargo Strategic or generate 0.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wells Fargo Strategic vs. Small Cap Stock
Performance |
| Timeline |
| Wells Fargo Strategic |
| Small Cap Stock |
Wells Fargo and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wells Fargo and Small Cap
The main advantage of trading using opposite Wells Fargo and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wells Fargo position performs unexpectedly, Small Cap 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 Small Cap will offset losses from the drop in Small Cap's long position.| Wells Fargo vs. Investec Emerging Markets | Wells Fargo vs. Nasdaq 100 2x Strategy | Wells Fargo vs. Siit Emerging Markets | Wells Fargo vs. Pnc Emerging Markets |
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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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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