Correlation Between State Street and Wells Fargo
Can any of the company-specific risk be diversified away by investing in both State Street 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 State Street and Wells Fargo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between State Street Emerging and Wells Fargo, you can compare the effects of market volatilities on State Street 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 State Street with a short position of Wells Fargo. Check out your portfolio center. Please also check ongoing floating volatility patterns of State Street and Wells Fargo.
Diversification Opportunities for State Street and Wells Fargo
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between State and Wells is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding State Street Emerging and Wells Fargo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo and State Street 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 State Street Emerging 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 State Street i.e., State Street and Wells Fargo go up and down completely randomly.
Pair Corralation between State Street and Wells Fargo
Assuming the 90 days horizon State Street is expected to generate 5.71 times less return on investment than Wells Fargo. But when comparing it to its historical volatility, State Street Emerging is 1.77 times less risky than Wells Fargo. It trades about 0.02 of its potential returns per unit of risk. Wells Fargo is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 4,116 in Wells Fargo on January 19, 2024 and sell it today you would earn a total of 1,602 from holding Wells Fargo or generate 38.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 99.77% |
| Values | Daily Returns |
State Street Emerging vs. Wells Fargo
Performance |
| Timeline |
| State Street Emerging |
| Wells Fargo |
State Street and Wells Fargo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with State Street and Wells Fargo
The main advantage of trading using opposite State Street and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if State Street 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.| State Street vs. Vanguard Emerging Markets | State Street vs. American Funds New | State Street vs. American Funds New | State Street vs. New World Fund |
| 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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