Correlation Between JPMorgan Chase and Wells Fargo

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

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

Diversification Opportunities for JPMorgan Chase and Wells Fargo

0.98

Correlation Coefficient

JPMorgan Chase  Wells Fargo

Almost no diversification

The 3 months correlation between JPMorgan and Wells is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding JPMorgan Chase Co and Wells Fargo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo and JPMorgan Chase 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 JPMorgan Chase Co 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 has no effect on the direction of JPMorgan Chase i.e., JPMorgan Chase and Wells Fargo go up and down completely randomly.

Pair Corralation between JPMorgan Chase and Wells Fargo

Assuming the 90 days trading horizon JPMorgan Chase Co is expected to under-perform the Wells Fargo. But the preferred stock apears to be less risky and, when comparing its historical volatility, JPMorgan Chase Co is 1.01 times less risky than Wells Fargo. The preferred stock trades about -0.09 of its potential returns per unit of risk. The Wells Fargo is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  2,001  in Wells Fargo on September 5, 2024 and sell it today you would lose (83.00) from holding Wells Fargo or give up 4.15% of portfolio value over 90 days.

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

JPMorgan Chase Co  vs.  Wells Fargo

JPMorgan Chase

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JPMorgan Chase Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent primary indicators, JPMorgan Chase is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Wells Fargo

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wells Fargo has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Wells Fargo is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with JPMorgan Chase and Wells Fargo

The main advantage of trading using opposite JPMorgan Chase and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JPMorgan Chase 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 JPMorgan Chase Co and Wells Fargo 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.