Correlation Between Bunge and Wells Fargo

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Can any of the company-specific risk be diversified away by investing in both Bunge 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 Bunge and Wells Fargo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bunge Limited and Wells Fargo, you can compare the effects of market volatilities on Bunge 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 Bunge with a short position of Wells Fargo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bunge and Wells Fargo.

Diversification Opportunities for Bunge and Wells Fargo

0.3
  Correlation Coefficient

Weak diversification

The 3 months correlation between Bunge and Wells is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Bunge Limited and Wells Fargo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo and Bunge 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 Bunge Limited 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 Bunge i.e., Bunge and Wells Fargo go up and down completely randomly.

Pair Corralation between Bunge and Wells Fargo

Allowing for the 90-day total investment horizon Bunge Limited is expected to generate 1.5 times more return on investment than Wells Fargo. However, Bunge is 1.5 times more volatile than Wells Fargo. It trades about 0.31 of its potential returns per unit of risk. Wells Fargo is currently generating about 0.3 per unit of risk. If you would invest  9,374  in Bunge Limited on December 30, 2023 and sell it today you would earn a total of  878.00  from holding Bunge Limited or generate 9.37% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Bunge Limited  vs.  Wells Fargo

 Performance 
       Timeline  
Bunge Limited 

Risk-Adjusted Performance

2 of 100

 
Low
 
High
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Bunge Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Bunge is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.
Wells Fargo 

Risk-Adjusted Performance

15 of 100

 
Low
 
High
Good
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 rather uncertain technical and fundamental indicators, Wells Fargo exhibited solid returns over the last few months and may actually be approaching a breakup point.

Bunge and Wells Fargo Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Bunge and Wells Fargo

The main advantage of trading using opposite Bunge and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bunge 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 Bunge Limited 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.

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