Correlation Between Wex and Medtronic PLC

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

Diversification Opportunities for Wex and Medtronic PLC

-0.11
  Correlation Coefficient

Good diversification

The 3 months correlation between Wex and Medtronic is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Wex Inc and Medtronic PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medtronic PLC and Wex 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 Wex Inc are associated (or correlated) with Medtronic PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medtronic PLC has no effect on the direction of Wex i.e., Wex and Medtronic PLC go up and down completely randomly.

Pair Corralation between Wex and Medtronic PLC

Considering the 90-day investment horizon Wex Inc is expected to generate 1.31 times more return on investment than Medtronic PLC. However, Wex is 1.31 times more volatile than Medtronic PLC. It trades about 0.13 of its potential returns per unit of risk. Medtronic PLC is currently generating about 0.1 per unit of risk. If you would invest  18,676  in Wex Inc on December 29, 2023 and sell it today you would earn a total of  4,712  from holding Wex Inc or generate 25.23% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy99.19%
ValuesDaily Returns

Wex Inc  vs.  Medtronic PLC

 Performance 
       Timeline  
Wex Inc 

Risk-Adjusted Performance

20 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Wex Inc are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain technical and fundamental indicators, Wex showed solid returns over the last few months and may actually be approaching a breakup point.
Medtronic PLC 

Risk-Adjusted Performance

8 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Medtronic PLC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent fundamental indicators, Medtronic PLC may actually be approaching a critical reversion point that can send shares even higher in April 2024.

Wex and Medtronic PLC Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Wex and Medtronic PLC

The main advantage of trading using opposite Wex and Medtronic PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wex position performs unexpectedly, Medtronic PLC 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 Medtronic PLC will offset losses from the drop in Medtronic PLC's long position.
The idea behind Wex Inc and Medtronic PLC 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 Transaction History module to view history of all your transactions and understand their impact on performance.

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