Correlation Between Franklin Federal and Wells Fargo
Can any of the company-specific risk be diversified away by investing in both Franklin Federal 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 Franklin Federal and Wells Fargo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Franklin Federal Tax Free and Wells Fargo Municipal, you can compare the effects of market volatilities on Franklin Federal 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 Franklin Federal with a short position of Wells Fargo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Federal and Wells Fargo.
Diversification Opportunities for Franklin Federal and Wells Fargo
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Franklin and Wells is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Federal Tax Free and Wells Fargo Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo Municipal and Franklin Federal 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 Franklin Federal Tax Free 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 Municipal has no effect on the direction of Franklin Federal i.e., Franklin Federal and Wells Fargo go up and down completely randomly.
Pair Corralation between Franklin Federal and Wells Fargo
Assuming the 90 days horizon Franklin Federal Tax Free is expected to under-perform the Wells Fargo. In addition to that, Franklin Federal is 1.15 times more volatile than Wells Fargo Municipal. It trades about -0.23 of its total potential returns per unit of risk. Wells Fargo Municipal is currently generating about -0.17 per unit of volatility. If you would invest 975.00 in Wells Fargo Municipal on January 26, 2024 and sell it today you would lose (6.00) from holding Wells Fargo Municipal or give up 0.62% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 95.45% |
Values | Daily Returns |
Franklin Federal Tax Free vs. Wells Fargo Municipal
Performance |
Timeline |
Franklin Federal Tax |
Wells Fargo Municipal |
Franklin Federal and Wells Fargo Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Franklin Federal and Wells Fargo
The main advantage of trading using opposite Franklin Federal and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin Federal 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.Franklin Federal vs. Blrc Sgy Mnp | Franklin Federal vs. Origin Emerging Markets | Franklin Federal vs. Extended Market Index | Franklin Federal vs. The National Tax Free |
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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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