Correlation Between Merchants Bancorp and Wells Fargo

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

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

Diversification Opportunities for Merchants Bancorp and Wells Fargo

-0.18
  Correlation Coefficient
Merchants Bancorp
Wells Fargo International

Good diversification

The 3 months correlation between Merchants and Wells is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Merchants Bancorp and Wells Fargo International in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo International and Merchants Bancorp 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 Merchants Bancorp 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 International has no effect on the direction of Merchants Bancorp i.e., Merchants Bancorp and Wells Fargo go up and down completely randomly.

Pair Corralation between Merchants Bancorp and Wells Fargo

Given the investment horizon of 90 days Merchants Bancorp is expected to generate 1.92 times more return on investment than Wells Fargo. However, Merchants Bancorp is 1.92 times more volatile than Wells Fargo International. It trades about 0.01 of its potential returns per unit of risk. Wells Fargo International is currently generating about -0.41 per unit of risk. If you would invest  4,560  in Merchants Bancorp on September 2, 2021 and sell it today you would earn a total of  1.00  from holding Merchants Bancorp or generate 0.02% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Merchants Bancorp  vs.  Wells Fargo International

 Performance (%) 
      Timeline 
Merchants Bancorp 
Merchants Performance
14 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Merchants Bancorp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady forward indicators, Merchants Bancorp disclosed solid returns over the last few months and may actually be approaching a breakup point.

Merchants Price Channel

Wells Fargo International 
Wells Performance
0 of 100
Over the last 90 days Wells Fargo International has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Merchants Bancorp and Wells Fargo Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Merchants Bancorp and Wells Fargo

The main advantage of trading using opposite Merchants Bancorp and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merchants Bancorp 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 Merchants Bancorp and Wells Fargo International 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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