Correlation Between Wells Fargo and Amcap Fund

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

By analyzing existing cross correlation between Wells Fargo Endeavor and Amcap Fund Class, you can compare the effects of market volatilities on Wells Fargo and Amcap Fund 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 Amcap Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wells Fargo and Amcap Fund.

Diversification Opportunities for Wells Fargo and Amcap Fund

0.99

Correlation Coefficient

Wells Fargo  Amcap Fund

No risk reduction

The 3 months correlation between Wells and Amcap is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo Endeavor and Amcap Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amcap Fund Class 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 Endeavor are associated (or correlated) with Amcap Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amcap Fund Class has no effect on the direction of Wells Fargo i.e., Wells Fargo and Amcap Fund go up and down completely randomly.

Pair Corralation between Wells Fargo and Amcap Fund

Assuming the 90 days horizon Wells Fargo Endeavor is expected to generate 1.31 times more return on investment than Amcap Fund. However, Wells Fargo is 1.31 times more volatile than Amcap Fund Class. It trades about 0.19 of its potential returns per unit of risk. Amcap Fund Class is currently generating about 0.23 per unit of risk. If you would invest  815.00  in Wells Fargo Endeavor on January 25, 2024 and sell it today you would earn a total of  234.00  from holding Wells Fargo Endeavor or generate 28.71% return on investment over 90 days.

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

Wells Fargo Endeavor  vs.  Amcap Fund Class

Wells Fargo Endeavor

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo Endeavor are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Wells Fargo is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Amcap Fund Class

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Amcap Fund Class are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Amcap Fund 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 Amcap Fund

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

The idea behind Wells Fargo Endeavor and Amcap Fund Class 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.