Correlation Between DexCom and Wells Fargo

Can any of the company-specific risk be diversified away by investing in both DexCom 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 DexCom and Wells Fargo into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between DexCom Inc and Wells Fargo, you can compare the effects of market volatilities on DexCom 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 DexCom with a short position of Wells Fargo. Check out your portfolio center. Please also check ongoing floating volatility patterns of DexCom and Wells Fargo.

Diversification Opportunities for DexCom and Wells Fargo

-0.21

Correlation Coefficient

DexCom  Wells Fargo

Very good diversification

The 3 months correlation between DexCom and Wells is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding DexCom Inc and Wells Fargo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo and DexCom 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 DexCom Inc 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 DexCom i.e., DexCom and Wells Fargo go up and down completely randomly.

Pair Corralation between DexCom and Wells Fargo

Assuming the 90 days trading horizon DexCom Inc is expected to under-perform the Wells Fargo. In addition to that, DexCom is 1.85 times more volatile than Wells Fargo. It trades about -0.11 of its total potential returns per unit of risk. Wells Fargo is currently generating about 0.13 per unit of volatility. If you would invest  7,256  in Wells Fargo on March 8, 2024 and sell it today you would earn a total of  504.00  from holding Wells Fargo or generate 6.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.62%
Values	Daily Returns

DexCom Inc  vs.  Wells Fargo

DexCom Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DexCom Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, DexCom is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Wells Fargo

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Wells Fargo may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Pair Trading with DexCom and Wells Fargo

The main advantage of trading using opposite DexCom and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DexCom 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 DexCom Inc and Wells Fargo 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.