Correlation Between Xero and Wisetech Global

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

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

Diversification Opportunities for Xero and Wisetech Global

0.17

Correlation Coefficient

Xero  Wisetech Global

Average diversification

The 3 months correlation between Xero and Wisetech is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Xero and Wisetech Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wisetech Global and Xero 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 Xero are associated (or correlated) with Wisetech Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wisetech Global has no effect on the direction of Xero i.e., Xero and Wisetech Global go up and down completely randomly.

Pair Corralation between Xero and Wisetech Global

Assuming the 90 days horizon Xero is expected to under-perform the Wisetech Global. But the stock apears to be less risky and, when comparing its historical volatility, Xero is 1.05 times less risky than Wisetech Global. The stock trades about -0.26 of its potential returns per unit of risk. The Wisetech Global is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  7,584  in Wisetech Global on September 27, 2024 and sell it today you would lose (307.00) from holding Wisetech Global or give up 4.05% of portfolio value over 90 days.

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

Xero  vs.  Wisetech Global

Xero

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xero are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Xero may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Wisetech Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wisetech Global has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Xero and Wisetech Global

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

The idea behind Xero and Wisetech Global 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.