Correlation Between American Balanced and Wells Fargo

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

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

Diversification Opportunities for American Balanced and Wells Fargo

0.93
  Correlation Coefficient
American Balanced
Wells Fargo Growth

Almost no diversification

The 3 months correlation between American and Wells is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced and Wells Fargo Growth in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo Growth and American Balanced 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 American Balanced 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 Growth has no effect on the direction of American Balanced i.e., American Balanced and Wells Fargo go up and down completely randomly.

Pair Corralation between American Balanced and Wells Fargo

Assuming the 90 days horizon American Balanced is expected to generate 0.9 times more return on investment than Wells Fargo. However, American Balanced is 1.11 times less risky than Wells Fargo. It trades about 0.09 of its potential returns per unit of risk. Wells Fargo Growth is currently generating about 0.06 per unit of risk. If you would invest  2,996  in American Balanced on September 5, 2021 and sell it today you would earn a total of  322.00  from holding American Balanced or generate 10.75% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

American Balanced  vs.  Wells Fargo Growth

 Performance (%) 
      Timeline 
American Balanced 
American Performance
0 of 100
Over the last 90 days American Balanced has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, American Balanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Wells Fargo Growth 
Wells Performance
0 of 100
Over the last 90 days Wells Fargo Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Wells Fargo is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American Balanced and Wells Fargo Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with American Balanced and Wells Fargo

The main advantage of trading using opposite American Balanced and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Balanced 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 American Balanced and Wells Fargo Growth 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 Global Correlations module to find global opportunities by holding instruments from different markets.

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