Correlation Between Wells Fargo and Smallcap World

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Can any of the company-specific risk be diversified away by investing in both Wells Fargo and Smallcap World 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 Smallcap World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wells Fargo Global and Smallcap World Fund, you can compare the effects of market volatilities on Wells Fargo and Smallcap World 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 Smallcap World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wells Fargo and Smallcap World.

Diversification Opportunities for Wells Fargo and Smallcap World

0.76
  Correlation Coefficient

Poor diversification

The 3 months correlation between Wells and Smallcap is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding WELLS FARGO GLOBAL and SMALLCAP WORLD FUND in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap World Fund 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 Global are associated (or correlated) with Smallcap World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap World Fund has no effect on the direction of Wells Fargo i.e., Wells Fargo and Smallcap World go up and down completely randomly.

Pair Corralation between Wells Fargo and Smallcap World

Assuming the 90 days horizon Wells Fargo Global is expected to generate 1.04 times more return on investment than Smallcap World. However, Wells Fargo is 1.04 times more volatile than Smallcap World Fund. It trades about 0.02 of its potential returns per unit of risk. Smallcap World Fund is currently generating about 0.01 per unit of risk. If you would invest  3,653  in Wells Fargo Global on December 30, 2023 and sell it today you would earn a total of  229.00  from holding Wells Fargo Global or generate 6.27% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

WELLS FARGO GLOBAL  vs.  SMALLCAP WORLD FUND

 Performance 
       Timeline  
Wells Fargo Global 

Risk-Adjusted Performance

3 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo Global are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Wells Fargo is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Smallcap World Fund 

Risk-Adjusted Performance

7 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap World Fund are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Smallcap World is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Wells Fargo and Smallcap World Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Wells Fargo and Smallcap World

The main advantage of trading using opposite Wells Fargo and Smallcap World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wells Fargo position performs unexpectedly, Smallcap World 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 Smallcap World will offset losses from the drop in Smallcap World's long position.
The idea behind Wells Fargo Global and Smallcap World Fund 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.
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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.

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