Correlation Between Wells Fargo and Chestnut Street

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

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

Diversification Opportunities for Wells Fargo and Chestnut Street

-0.55

Correlation Coefficient

Wells Fargo  Chestnut Street

Excellent diversification

The 3 months correlation between Wells and Chestnut is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo Advantage and Chestnut Street Exchange in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chestnut Street Exchange 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 Advantage are associated (or correlated) with Chestnut Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chestnut Street Exchange has no effect on the direction of Wells Fargo i.e., Wells Fargo and Chestnut Street go up and down completely randomly.

Pair Corralation between Wells Fargo and Chestnut Street

Assuming the 90 days horizon Wells Fargo Advantage is expected to under-perform the Chestnut Street. But the mutual fund apears to be less risky and, when comparing its historical volatility, Wells Fargo Advantage is 1.93 times less risky than Chestnut Street. The mutual fund trades about -0.15 of its potential returns per unit of risk. The Chestnut Street Exchange is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  110,966  in Chestnut Street Exchange on September 14, 2024 and sell it today you would earn a total of  6,361  from holding Chestnut Street Exchange or generate 5.73% return on investment over 90 days.

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

Wells Fargo Advantage  vs.  Chestnut Street Exchange

Wells Fargo Advantage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wells Fargo Advantage has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Wells Fargo is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Chestnut Street Exchange

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chestnut Street Exchange are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Chestnut Street 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 Chestnut Street

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

The idea behind Wells Fargo Advantage and Chestnut Street Exchange 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.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.