Correlation Between WuXi AppTec and DexCom

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

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

Diversification Opportunities for WuXi AppTec and DexCom

-0.61

Correlation Coefficient

WuXi AppTec  DexCom

Excellent diversification

The 3 months correlation between WuXi and DexCom is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding WuXi AppTec Co and DexCom Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DexCom Inc and WuXi AppTec 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 WuXi AppTec Co are associated (or correlated) with DexCom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DexCom Inc has no effect on the direction of WuXi AppTec i.e., WuXi AppTec and DexCom go up and down completely randomly.

Pair Corralation between WuXi AppTec and DexCom

Assuming the 90 days horizon WuXi AppTec is expected to generate 1.21 times less return on investment than DexCom. In addition to that, WuXi AppTec is 2.56 times more volatile than DexCom Inc. It trades about 0.03 of its total potential returns per unit of risk. DexCom Inc is currently generating about 0.09 per unit of volatility. If you would invest  10,840  in DexCom Inc on February 19, 2024 and sell it today you would earn a total of  1,254  from holding DexCom Inc or generate 11.57% return on investment over 90 days.

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

WuXi AppTec Co  vs.  DexCom Inc

WuXi AppTec

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WuXi AppTec Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, WuXi AppTec may actually be approaching a critical reversion point that can send shares even higher in June 2024.

DexCom Inc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DexCom Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, DexCom may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with WuXi AppTec and DexCom

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

The idea behind WuXi AppTec Co and DexCom 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.

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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 Equity Valuation module to check real value of public entities based on technical and fundamental data.