Correlation Between US Bancorp and Wells Fargo

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

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

Diversification Opportunities for US Bancorp and Wells Fargo

-0.26

Correlation Coefficient

US Bancorp  Wells Fargo

Very good diversification

The 3 months correlation between USB-PA and Wells is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding US Bancorp PERP and Wells Fargo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo and US Bancorp 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 US Bancorp PERP 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 US Bancorp i.e., US Bancorp and Wells Fargo go up and down completely randomly.

Pair Corralation between US Bancorp and Wells Fargo

Assuming the 90 days trading horizon US Bancorp PERP is expected to generate 0.86 times more return on investment than Wells Fargo. However, US Bancorp PERP is 1.17 times less risky than Wells Fargo. It trades about -0.01 of its potential returns per unit of risk. Wells Fargo is currently generating about -0.21 per unit of risk. If you would invest  86,350  in US Bancorp PERP on February 2, 2024 and sell it today you would lose (150.00) from holding US Bancorp PERP or give up 0.17% of portfolio value over 90 days.

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

US Bancorp PERP  vs.  Wells Fargo

US Bancorp PERP

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in US Bancorp PERP are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, US Bancorp is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Wells Fargo

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wells Fargo has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Wells Fargo is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with US Bancorp and Wells Fargo

The main advantage of trading using opposite US Bancorp and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if US Bancorp 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 US Bancorp PERP 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 Transaction History module to view history of all your transactions and understand their impact on performance.