Correlation Between Wells Fargo and VersaBank

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

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

Diversification Opportunities for Wells Fargo and VersaBank

0.98

Correlation Coefficient

Wells Fargo  VersaBank

Almost no diversification

The 3 months correlation between Wells and VersaBank is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo and VersaBank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VersaBank 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 VersaBank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VersaBank has no effect on the direction of Wells Fargo i.e., Wells Fargo and VersaBank go up and down completely randomly.

Pair Corralation between Wells Fargo and VersaBank

Considering the 90-day investment horizon Wells Fargo is expected to generate 1.07 times less return on investment than VersaBank. In addition to that, Wells Fargo is 1.15 times more volatile than VersaBank. It trades about 0.19 of its total potential returns per unit of risk. VersaBank is currently generating about 0.23 per unit of volatility. If you would invest  1,338  in VersaBank on September 3, 2024 and sell it today you would earn a total of  461.00  from holding VersaBank or generate 34.45% 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  vs.  VersaBank

Wells Fargo

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical and fundamental indicators, Wells Fargo exhibited solid returns over the last few months and may actually be approaching a breakup point.

VersaBank

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in VersaBank are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating basic indicators, VersaBank disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wells Fargo and VersaBank

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

The idea behind Wells Fargo and VersaBank 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 Transaction History module to view history of all your transactions and understand their impact on performance.