Correlation Between Wex and Microsoft

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

By analyzing existing cross correlation between Wex Inc and Microsoft, you can compare the effects of market volatilities on Wex and Microsoft 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 Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wex and Microsoft.

Diversification Opportunities for Wex and Microsoft

0.83

Correlation Coefficient

Wex  Microsoft

Very poor diversification

The 3 months correlation between Wex and Microsoft is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Wex Inc and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft 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 Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Wex i.e., Wex and Microsoft go up and down completely randomly.

Pair Corralation between Wex and Microsoft

Considering the 90-day investment horizon Wex is expected to generate 1.07 times less return on investment than Microsoft. In addition to that, Wex is 1.09 times more volatile than Microsoft. It trades about 0.05 of its total potential returns per unit of risk. Microsoft is currently generating about 0.05 per unit of volatility. If you would invest  27,819  in Microsoft on January 17, 2024 and sell it today you would earn a total of  13,545  from holding Microsoft or generate 48.69% return on investment over 90 days.

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

Wex Inc  vs.  Microsoft

Wex Inc

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wex Inc are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady technical and fundamental indicators, Wex showed solid returns over the last few months and may actually be approaching a breakup point.

Microsoft

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Wex and Microsoft

The main advantage of trading using opposite Wex and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wex position performs unexpectedly, Microsoft 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 Microsoft will offset losses from the drop in Microsoft's long position.

The idea behind Wex Inc and Microsoft 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.