Correlation Between Palo Alto and HubSpot

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

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

Diversification Opportunities for Palo Alto and HubSpot

0.88

Correlation Coefficient

Palo Alto  HubSpot

Very poor diversification

The 3 months correlation between Palo and HubSpot is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Palo Alto Networks and HubSpot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HubSpot and Palo Alto 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 Palo Alto Networks are associated (or correlated) with HubSpot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HubSpot has no effect on the direction of Palo Alto i.e., Palo Alto and HubSpot go up and down completely randomly.

Pair Corralation between Palo Alto and HubSpot

Assuming the 90 days horizon Palo Alto is expected to generate 2.79 times less return on investment than HubSpot. But when comparing it to its historical volatility, Palo Alto Networks is 1.46 times less risky than HubSpot. It trades about 0.22 of its potential returns per unit of risk. HubSpot is currently generating about 0.41 of returns per unit of risk over similar time horizon. If you would invest  51,180  in HubSpot on September 1, 2024 and sell it today you would earn a total of  16,900  from holding HubSpot or generate 33.02% return on investment over 90 days.

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

Palo Alto Networks  vs.  HubSpot

Palo Alto Networks

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Palo Alto Networks are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Palo Alto reported solid returns over the last few months and may actually be approaching a breakup point.

HubSpot

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HubSpot are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, HubSpot reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Palo Alto and HubSpot

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

The idea behind Palo Alto Networks and HubSpot 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.