Correlation Between Wells Fargo and Vanguard Small

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

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

Diversification Opportunities for Wells Fargo and Vanguard Small

0.95

Correlation Coefficient

Wells Fargo  Vanguard Small

Almost no diversification

The 3 months correlation between Wells and Vanguard is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo Small and Vanguard Small Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small Cap and Wells Fargo 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 Wells Fargo Small are associated (or correlated) with Vanguard Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Small Cap has no effect on the direction of Wells Fargo i.e., Wells Fargo and Vanguard Small go up and down completely randomly.

Pair Corralation between Wells Fargo and Vanguard Small

Assuming the 90 days horizon Wells Fargo Small is expected to under-perform the Vanguard Small. In addition to that, Wells Fargo is 1.12 times more volatile than Vanguard Small Cap Value. It trades about -0.25 of its total potential returns per unit of risk. Vanguard Small Cap Value is currently generating about -0.26 per unit of volatility. If you would invest  4,546  in Vanguard Small Cap Value on March 20, 2024 and sell it today you would lose (204.00) from holding Vanguard Small Cap Value or give up 4.49% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Wells Fargo Small  vs.  Vanguard Small Cap Value

Wells Fargo Small

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wells Fargo Small has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward-looking indicators, Wells Fargo is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Small Cap Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Vanguard Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Wells Fargo and Vanguard Small

The main advantage of trading using opposite Wells Fargo and Vanguard Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wells Fargo position performs unexpectedly, Vanguard Small 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 Vanguard Small will offset losses from the drop in Vanguard Small's long position.

The idea behind Wells Fargo Small and Vanguard Small Cap Value 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.

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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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.