Correlation Between Vanguard Extended and Wells Fargo

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Can any of the company-specific risk be diversified away by investing in both Vanguard Extended 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 Vanguard Extended and Wells Fargo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Extended Market and Wells Fargo Enterprise, you can compare the effects of market volatilities on Vanguard Extended 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 Vanguard Extended with a short position of Wells Fargo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Extended and Wells Fargo.

Diversification Opportunities for Vanguard Extended and Wells Fargo

0.91
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Vanguard and Wells is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding VANGUARD EXTENDED MARKET and WELLS FARGO ENTERPRISE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo Enterprise and Vanguard Extended 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 Vanguard Extended Market 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 Enterprise has no effect on the direction of Vanguard Extended i.e., Vanguard Extended and Wells Fargo go up and down completely randomly.

Pair Corralation between Vanguard Extended and Wells Fargo

Assuming the 90 days horizon Vanguard Extended Market is expected to generate 0.86 times more return on investment than Wells Fargo. However, Vanguard Extended Market is 1.16 times less risky than Wells Fargo. It trades about 0.02 of its potential returns per unit of risk. Wells Fargo Enterprise is currently generating about 0.01 per unit of risk. If you would invest  11,828  in Vanguard Extended Market on December 29, 2023 and sell it today you would earn a total of  1,446  from holding Vanguard Extended Market or generate 12.23% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy99.8%
ValuesDaily Returns

VANGUARD EXTENDED MARKET  vs.  WELLS FARGO ENTERPRISE

 Performance 
       Timeline  
Vanguard Extended Market 

Risk-Adjusted Performance

7 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Extended Market are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly fragile primary indicators, Vanguard Extended may actually be approaching a critical reversion point that can send shares even higher in April 2024.
Wells Fargo Enterprise 

Risk-Adjusted Performance

12 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo Enterprise are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly fragile forward indicators, Wells Fargo may actually be approaching a critical reversion point that can send shares even higher in April 2024.

Vanguard Extended and Wells Fargo Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Vanguard Extended and Wells Fargo

The main advantage of trading using opposite Vanguard Extended and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Extended 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 Vanguard Extended Market and Wells Fargo Enterprise 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.

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