Correlation Between Disney and Wells Fargo

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

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

Diversification Opportunities for Disney and Wells Fargo

0.73

Correlation Coefficient

Disney  Wells Fargo

Poor diversification

The 3 months correlation between Disney and Wells is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Wells Fargo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wells Fargo and Disney 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 Walt Disney 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 Disney i.e., Disney and Wells Fargo go up and down completely randomly.

Pair Corralation between Disney and Wells Fargo

Considering the 90-day investment horizon Disney is expected to generate 4.56 times less return on investment than Wells Fargo. In addition to that, Disney is 1.19 times more volatile than Wells Fargo. It trades about 0.04 of its total potential returns per unit of risk. Wells Fargo is currently generating about 0.21 per unit of volatility. If you would invest  5,472  in Wells Fargo on January 29, 2024 and sell it today you would earn a total of  519.00  from holding Wells Fargo or generate 9.48% return on investment over 90 days.

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

Walt Disney  vs.  Wells Fargo

Walt Disney

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent forward indicators, Disney unveiled solid returns over the last few months and may actually be approaching a breakup point.

Wells Fargo

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Wells Fargo exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Disney and Wells Fargo

The main advantage of trading using opposite Disney and Wells Fargo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Disney 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 Walt Disney 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.