Correlation Between Wex and Palo Alto

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

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

Diversification Opportunities for Wex and Palo Alto

-0.72

Correlation Coefficient

Wex  Palo Alto

Pay attention - limited upside

The 3 months correlation between Wex and Palo is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Wex Inc and Palo Alto Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Palo Alto Networks 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 Palo Alto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Palo Alto Networks has no effect on the direction of Wex i.e., Wex and Palo Alto go up and down completely randomly.

Pair Corralation between Wex and Palo Alto

Considering the 90-day investment horizon Wex is expected to generate 2.06 times less return on investment than Palo Alto. But when comparing it to its historical volatility, Wex Inc is 1.44 times less risky than Palo Alto. It trades about 0.04 of its potential returns per unit of risk. Palo Alto Networks is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  15,606  in Palo Alto Networks on February 3, 2024 and sell it today you would earn a total of  13,926  from holding Palo Alto Networks or generate 89.23% return on investment over 90 days.

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

Wex Inc  vs.  Palo Alto Networks

Wex Inc

Risk-Adjusted Performance

5 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wex Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal technical and fundamental indicators, Wex may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Palo Alto Networks

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Palo Alto Networks has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Wex and Palo Alto

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

The idea behind Wex Inc and Palo Alto Networks 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.