Correlation Between Wells Fargo and American Express

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

Diversification Opportunities for Wells Fargo and American Express

0.86
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Wells and American is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo and American Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Express 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 American Express. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Express has no effect on the direction of Wells Fargo i.e., Wells Fargo and American Express go up and down completely randomly.

Pair Corralation between Wells Fargo and American Express

Considering the 90-day investment horizon Wells Fargo is expected to generate 0.81 times more return on investment than American Express. However, Wells Fargo is 1.23 times less risky than American Express. It trades about 0.3 of its potential returns per unit of risk. American Express is currently generating about 0.19 per unit of risk. If you would invest  5,472  in Wells Fargo on December 30, 2023 and sell it today you would earn a total of  324.00  from holding Wells Fargo or generate 5.92% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Wells Fargo  vs.  American Express

 Performance 
       Timeline  
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.
American Express 

Risk-Adjusted Performance

19 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, American Express reported solid returns over the last few months and may actually be approaching a breakup point.

Wells Fargo and American Express Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Wells Fargo and American Express

The main advantage of trading using opposite Wells Fargo and American Express positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wells Fargo position performs unexpectedly, American Express 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 American Express will offset losses from the drop in American Express' long position.
The idea behind Wells Fargo and American Express 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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