Correlation Between Microsoft and Wells Fargo
Can any of the company-specific risk be diversified away by investing in both Microsoft 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 Microsoft and Wells Fargo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Wells Fargo, you can compare the effects of market volatilities on Microsoft 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 Microsoft with a short position of Wells Fargo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Wells Fargo.
Diversification Opportunities for Microsoft and Wells Fargo
0.47 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Microsoft and Wells is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Wells Fargo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo and Microsoft 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 Microsoft 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 has no effect on the direction of Microsoft i.e., Microsoft and Wells Fargo go up and down completely randomly.
Pair Corralation between Microsoft and Wells Fargo
Given the investment horizon of 90 days Microsoft is expected to under-perform the Wells Fargo. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.12 times less risky than Wells Fargo. The stock trades about -0.14 of its potential returns per unit of risk. The Wells Fargo is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 5,668 in Wells Fargo on January 26, 2024 and sell it today you would earn a total of 392.00 from holding Wells Fargo or generate 6.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Wells Fargo
Performance |
| Timeline |
| Microsoft |
| Wells Fargo |
Microsoft and Wells Fargo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Wells Fargo
The main advantage of trading using opposite Microsoft and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Wells Fargo vs. Bank of America | Wells Fargo vs. JPMorgan Chase Co | Wells Fargo vs. Toronto Dominion Bank | Wells Fargo vs. Nu Holdings |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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