Correlation Between Rapid7 and WixCom

Can any of the company-specific risk be diversified away by investing in both Rapid7 and WixCom 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 Rapid7 and WixCom into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Rapid7 Inc and WixCom, you can compare the effects of market volatilities on Rapid7 and WixCom 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 Rapid7 with a short position of WixCom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rapid7 and WixCom.

Diversification Opportunities for Rapid7 and WixCom

0.6

Correlation Coefficient

Rapid7  WixCom

Poor diversification

The 3 months correlation between Rapid7 and WixCom is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Rapid7 Inc and WixCom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WixCom and Rapid7 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 Rapid7 Inc are associated (or correlated) with WixCom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WixCom has no effect on the direction of Rapid7 i.e., Rapid7 and WixCom go up and down completely randomly.

Pair Corralation between Rapid7 and WixCom

Considering the 90-day investment horizon Rapid7 is expected to generate 2.36 times less return on investment than WixCom. But when comparing it to its historical volatility, Rapid7 Inc is 1.31 times less risky than WixCom. It trades about 0.09 of its potential returns per unit of risk. WixCom is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  16,974  in WixCom on September 25, 2024 and sell it today you would earn a total of  5,126  from holding WixCom or generate 30.2% return on investment over 90 days.

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

Rapid7 Inc  vs.  WixCom

Rapid7 Inc

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Rapid7 Inc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Rapid7 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

WixCom

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WixCom are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain forward indicators, WixCom showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rapid7 and WixCom

The main advantage of trading using opposite Rapid7 and WixCom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rapid7 position performs unexpectedly, WixCom 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 WixCom will offset losses from the drop in WixCom's long position.

The idea behind Rapid7 Inc and WixCom 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.