Correlation Between Wells Fargo and B of A

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

Diversification Opportunities for Wells Fargo and B of A

  Correlation Coefficient

Very poor diversification

The 3 months correlation between Wells and B of A is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo and Bank Of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Of America 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 are associated (or correlated) with B of A. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Of America has no effect on the direction of Wells Fargo i.e., Wells Fargo and B of A go up and down completely randomly.

Pair Corralation between Wells Fargo and B of A

Considering the 90-day investment horizon Wells Fargo is expected to generate 1.14 times more return on investment than B of A. However, Wells Fargo is 1.14 times more volatile than Bank Of America. It trades about 0.01 of its potential returns per unit of risk. Bank Of America is currently generating about -0.03 per unit of risk. If you would invest  3,793  in Wells Fargo on December 23, 2022 and sell it today you would lose (43.00)  from holding Wells Fargo or give up 1.13% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
ValuesDaily Returns

Wells Fargo  vs.  Bank Of America

 Performance (%) 
Wells Fargo 

Wells Performance

0 of 100

Over the last 90 days Wells Fargo has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.
Bank Of America 

B of A Performance

0 of 100

Over the last 90 days Bank Of America has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2023. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Wells Fargo and B of A Volatility Contrast

   Predicted Return Density   

Pair Trading with Wells Fargo and B of A

The main advantage of trading using opposite Wells Fargo and B of A positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wells Fargo position performs unexpectedly, B of A 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 B of A will offset losses from the drop in B of A's long position.
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The idea behind Wells Fargo and Bank Of America 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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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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