Correlation Between Wex and Dropbox

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

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

Diversification Opportunities for Wex and Dropbox

-0.26

Correlation Coefficient

Wex  Dropbox

Very good diversification

The 3 months correlation between Wex and Dropbox is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Wex Inc and Dropbox in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dropbox 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 Dropbox. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dropbox has no effect on the direction of Wex i.e., Wex and Dropbox go up and down completely randomly.

Pair Corralation between Wex and Dropbox

Considering the 90-day investment horizon Wex is expected to generate 8.45 times less return on investment than Dropbox. In addition to that, Wex is 1.52 times more volatile than Dropbox. It trades about 0.01 of its total potential returns per unit of risk. Dropbox is currently generating about 0.11 per unit of volatility. If you would invest  2,514  in Dropbox on August 30, 2024 and sell it today you would earn a total of  286.00  from holding Dropbox or generate 11.38% return on investment over 90 days.

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

Wex Inc  vs.  Dropbox

Wex Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wex Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Wex is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Dropbox

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dropbox are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental drivers, Dropbox may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Wex and Dropbox

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

The idea behind Wex Inc and Dropbox 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..