Correlation Between Mid Cap and Wells Fargo

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

Diversification Opportunities for Mid Cap and Wells Fargo

0.85
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Mid and Wells is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding MID CAP VALUE and WELLS FARGO SPECIAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo Special and Mid Cap 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 Mid Cap Value 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 Special has no effect on the direction of Mid Cap i.e., Mid Cap and Wells Fargo go up and down completely randomly.

Pair Corralation between Mid Cap and Wells Fargo

Assuming the 90 days horizon Mid Cap is expected to generate 1.38 times less return on investment than Wells Fargo. In addition to that, Mid Cap is 1.19 times more volatile than Wells Fargo Special. It trades about 0.32 of its total potential returns per unit of risk. Wells Fargo Special is currently generating about 0.52 per unit of volatility. If you would invest  4,688  in Wells Fargo Special on December 29, 2023 and sell it today you would earn a total of  282.00  from holding Wells Fargo Special or generate 6.02% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

MID CAP VALUE  vs.  WELLS FARGO SPECIAL

 Performance 
       Timeline  
Mid Cap Value 

Risk-Adjusted Performance

9 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Value are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Mid Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Wells Fargo Special 

Risk-Adjusted Performance

16 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo Special are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly fragile fundamental indicators, Wells Fargo may actually be approaching a critical reversion point that can send shares even higher in April 2024.

Mid Cap and Wells Fargo Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Mid Cap and Wells Fargo

The main advantage of trading using opposite Mid Cap and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mid Cap 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.
The idea behind Mid Cap Value and Wells Fargo Special 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.

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