Correlation Between Smith Nephew and Wells Fargo
Can any of the company-specific risk be diversified away by investing in both Smith Nephew 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 Smith Nephew and Wells Fargo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Smith Nephew plc and Wells Fargo, you can compare the effects of market volatilities on Smith Nephew 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 Smith Nephew with a short position of Wells Fargo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smith Nephew and Wells Fargo.
Diversification Opportunities for Smith Nephew and Wells Fargo
-0.63 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Smith and Wells is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Smith Nephew plc and Wells Fargo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo and Smith Nephew 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 Smith Nephew plc 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 Smith Nephew i.e., Smith Nephew and Wells Fargo go up and down completely randomly.
Pair Corralation between Smith Nephew and Wells Fargo
Assuming the 90 days horizon Smith Nephew plc is expected to under-perform the Wells Fargo. In addition to that, Smith Nephew is 1.43 times more volatile than Wells Fargo. It trades about -0.01 of its total potential returns per unit of risk. Wells Fargo is currently generating about 0.31 per unit of volatility. If you would invest 5,673 in Wells Fargo on January 25, 2024 and sell it today you would earn a total of 421.00 from holding Wells Fargo or generate 7.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Smith Nephew plc vs. Wells Fargo
Performance |
| Timeline |
| Smith Nephew plc |
| Wells Fargo |
Smith Nephew and Wells Fargo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Smith Nephew and Wells Fargo
The main advantage of trading using opposite Smith Nephew and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smith Nephew 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.| Smith Nephew vs. Ainos Inc | Smith Nephew vs. SurModics | Smith Nephew vs. LENSAR Inc | Smith Nephew vs. IRIDEX |
| Wells Fargo vs. Bank of America | Wells Fargo vs. JPMorgan Chase Co | Wells Fargo vs. Toronto Dominion Bank | Wells Fargo vs. Nu Holdings |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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