Correlation Between Deluxe and Wex

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

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

Diversification Opportunities for Deluxe and Wex

-0.45

Correlation Coefficient

Deluxe  Wex

Very good diversification

The 3 months correlation between Deluxe and Wex is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Deluxe and Wex Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wex Inc and Deluxe 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 Deluxe are associated (or correlated) with Wex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wex Inc has no effect on the direction of Deluxe i.e., Deluxe and Wex go up and down completely randomly.

Pair Corralation between Deluxe and Wex

Considering the 90-day investment horizon Deluxe is expected to generate 0.94 times more return on investment than Wex. However, Deluxe is 1.07 times less risky than Wex. It trades about 0.13 of its potential returns per unit of risk. Wex Inc is currently generating about 0.01 per unit of risk. If you would invest  1,947  in Deluxe on September 1, 2024 and sell it today you would earn a total of  370.00  from holding Deluxe or generate 19.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Deluxe  vs.  Wex Inc

Deluxe

Risk-Adjusted Performance

10 of 100

OK

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

Wex Inc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wex Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, Wex is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Deluxe and Wex

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

The idea behind Deluxe and Wex Inc 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.