Correlation Between Transportadora and Wells Fargo

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

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

Diversification Opportunities for Transportadora and Wells Fargo

0.78

Correlation Coefficient

Transportadora  Wells Fargo

Poor diversification

The 3 months correlation between Transportadora and Wells is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Transportadora de Gas and Wells Fargo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo and Transportadora 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 Transportadora de Gas 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 Transportadora i.e., Transportadora and Wells Fargo go up and down completely randomly.

Pair Corralation between Transportadora and Wells Fargo

Assuming the 90 days trading horizon Transportadora de Gas is expected to generate 0.95 times more return on investment than Wells Fargo. However, Transportadora de Gas is 1.05 times less risky than Wells Fargo. It trades about 0.15 of its potential returns per unit of risk. Wells Fargo is currently generating about 0.1 per unit of risk. If you would invest  529,000  in Transportadora de Gas on September 5, 2024 and sell it today you would earn a total of  125,000  from holding Transportadora de Gas or generate 23.63% return on investment over 90 days.

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

Transportadora de Gas  vs.  Wells Fargo

Transportadora de Gas

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Transportadora de Gas are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Transportadora sustained solid returns over the last few months and may actually be approaching a breakup point.

Wells Fargo

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Wells Fargo sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Transportadora and Wells Fargo

The main advantage of trading using opposite Transportadora and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transportadora 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 Transportadora de Gas 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.