Correlation Between Cloudflare and Wex

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

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

Diversification Opportunities for Cloudflare and Wex

0.39

Correlation Coefficient

Cloudflare  Wex

Weak diversification

The 3 months correlation between Cloudflare and Wex is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Cloudflare and Wex Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wex Inc and Cloudflare 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 Cloudflare 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 Cloudflare i.e., Cloudflare and Wex go up and down completely randomly.

Pair Corralation between Cloudflare and Wex

Considering the 90-day investment horizon Cloudflare is expected to generate 1.04 times more return on investment than Wex. However, Cloudflare is 1.04 times more volatile than Wex Inc. It trades about -0.16 of its potential returns per unit of risk. Wex Inc is currently generating about -0.28 per unit of risk. If you would invest  9,497  in Cloudflare on February 2, 2024 and sell it today you would lose (693.00) from holding Cloudflare or give up 7.3% of portfolio value over 90 days.

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

Cloudflare  vs.  Wex Inc

Cloudflare

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cloudflare are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal technical and fundamental indicators, Cloudflare may actually be approaching a critical reversion point that can send shares even higher in June 2024.

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 newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cloudflare and Wex

The main advantage of trading using opposite Cloudflare and Wex positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cloudflare 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 Cloudflare 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.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.