Correlation Between Wells Fargo and FibraHotel

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

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

Diversification Opportunities for Wells Fargo and FibraHotel

0.56

Correlation Coefficient

Wells Fargo  FibraHotel

Very weak diversification

The 3 months correlation between Wells and FibraHotel is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo and FibraHotel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FibraHotel 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 FibraHotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FibraHotel has no effect on the direction of Wells Fargo i.e., Wells Fargo and FibraHotel go up and down completely randomly.

Pair Corralation between Wells Fargo and FibraHotel

Assuming the 90 days trading horizon Wells Fargo is expected to generate 1.33 times more return on investment than FibraHotel. However, Wells Fargo is 1.33 times more volatile than FibraHotel. It trades about 0.2 of its potential returns per unit of risk. FibraHotel is currently generating about 0.04 per unit of risk. If you would invest  104,897  in Wells Fargo on September 14, 2024 and sell it today you would earn a total of  39,603  from holding Wells Fargo or generate 37.75% 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.  FibraHotel

Wells Fargo

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Wells Fargo showed solid returns over the last few months and may actually be approaching a breakup point.

FibraHotel

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in FibraHotel are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical indicators, FibraHotel 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 FibraHotel

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

The idea behind Wells Fargo and FibraHotel 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.