Correlation Between Wells Fargo and Compania Cervecerias

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

Diversification Opportunities for Wells Fargo and Compania Cervecerias

0.64
  Correlation Coefficient

Poor diversification

The 3 months correlation between Wells and Compania is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo and Compania Cervecerias Unidas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compania Cervecerias 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 Compania Cervecerias. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compania Cervecerias has no effect on the direction of Wells Fargo i.e., Wells Fargo and Compania Cervecerias go up and down completely randomly.

Pair Corralation between Wells Fargo and Compania Cervecerias

Considering the 90-day investment horizon Wells Fargo is expected to under-perform the Compania Cervecerias. In addition to that, Wells Fargo is 1.07 times more volatile than Compania Cervecerias Unidas. It trades about -0.2 of its total potential returns per unit of risk. Compania Cervecerias Unidas is currently generating about 0.25 per unit of volatility. If you would invest  1,124  in Compania Cervecerias Unidas on September 8, 2022 and sell it today you would earn a total of  103.00  from holding Compania Cervecerias Unidas or generate 9.16% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Wells Fargo  vs.  Compania Cervecerias Unidas

 Performance (%) 
       Timeline  
Wells Fargo 
Wells Performance
0 of 100
Over the last 90 days Wells Fargo has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Wells Fargo is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Wells Price Channel

Compania Cervecerias 
Compania Performance
6 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Compania Cervecerias Unidas are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively sluggish fundamental indicators, Compania Cervecerias unveiled solid returns over the last few months and may actually be approaching a breakup point.

Compania Price Channel

Wells Fargo and Compania Cervecerias Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Wells Fargo and Compania Cervecerias

The main advantage of trading using opposite Wells Fargo and Compania Cervecerias positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wells Fargo position performs unexpectedly, Compania Cervecerias 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 Compania Cervecerias will offset losses from the drop in Compania Cervecerias' long position.
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The idea behind Wells Fargo and Compania Cervecerias Unidas 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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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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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