Correlation Between Palo Alto and Autodesk

Can any of the company-specific risk be diversified away by investing in both Palo Alto and Autodesk 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 Autodesk 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 Autodesk, you can compare the effects of market volatilities on Palo Alto and Autodesk 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 Autodesk. Check out your portfolio center. Please also check ongoing floating volatility patterns of Palo Alto and Autodesk.

Diversification Opportunities for Palo Alto and Autodesk

0.93

Correlation Coefficient

Palo Alto  Autodesk

Almost no diversification

The 3 months correlation between Palo and Autodesk is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Palo Alto Networks and Autodesk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Autodesk 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 Autodesk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Autodesk has no effect on the direction of Palo Alto i.e., Palo Alto and Autodesk go up and down completely randomly.

Pair Corralation between Palo Alto and Autodesk

Assuming the 90 days horizon Palo Alto is expected to generate 1.18 times less return on investment than Autodesk. In addition to that, Palo Alto is 1.1 times more volatile than Autodesk. It trades about 0.15 of its total potential returns per unit of risk. Autodesk is currently generating about 0.19 per unit of volatility. If you would invest  23,600  in Autodesk on September 12, 2024 and sell it today you would earn a total of  5,485  from holding Autodesk or generate 23.24% return on investment over 90 days.

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

Palo Alto Networks  vs.  Autodesk

Palo Alto Networks

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Palo Alto Networks are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Palo Alto reported solid returns over the last few months and may actually be approaching a breakup point.

Autodesk

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Autodesk are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Autodesk reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Palo Alto and Autodesk

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

The idea behind Palo Alto Networks and Autodesk 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.