Correlation Between Wells Fargo and Bank of China
Can any of the company-specific risk be diversified away by investing in both Wells Fargo and Bank of China 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 Bank of China 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 China, you can compare the effects of market volatilities on Wells Fargo and Bank of China 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 Bank of China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wells Fargo and Bank of China.
Diversification Opportunities for Wells Fargo and Bank of China
0.42 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Wells and Bank is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo and Bank of China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of China 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 Bank of China. 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 China has no effect on the direction of Wells Fargo i.e., Wells Fargo and Bank of China go up and down completely randomly.
Pair Corralation between Wells Fargo and Bank of China
Assuming the 90 days horizon Wells Fargo is expected to generate 1.07 times more return on investment than Bank of China. However, Wells Fargo is 1.07 times more volatile than Bank of China. It trades about 0.24 of its potential returns per unit of risk. Bank of China is currently generating about 0.06 per unit of risk. If you would invest 4,803 in Wells Fargo on September 25, 2024 and sell it today you would earn a total of 1,985 from holding Wells Fargo or generate 41.33% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Wells Fargo vs. Bank of China
Performance |
Timeline |
Wells Fargo |
Bank of China |
Wells Fargo and Bank of China Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Wells Fargo and Bank of China
The main advantage of trading using opposite Wells Fargo and Bank of China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wells Fargo position performs unexpectedly, Bank of China 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 Bank of China will offset losses from the drop in Bank of China's long position.Wells Fargo vs. China Construction Bank | Wells Fargo vs. HSBC Holdings plc | Wells Fargo vs. HSBC Holdings plc | Wells Fargo vs. Agricultural Bank of |
Bank of China vs. Wells Fargo | Bank of China vs. China Construction Bank | Bank of China vs. HSBC Holdings plc | Bank of China vs. HSBC Holdings plc |
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 the Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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