Correlation Between Palo Alto and Apple

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

Diversification Opportunities for Palo Alto and Apple

0.79

Correlation Coefficient

Palo Alto  Apple

Poor diversification

The 3 months correlation between Palo and Apple is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Palo Alto Networks and Apple Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Apple Inc 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 Apple. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Apple Inc has no effect on the direction of Palo Alto i.e., Palo Alto and Apple go up and down completely randomly.

Pair Corralation between Palo Alto and Apple

Assuming the 90 days trading horizon Palo Alto is expected to generate 1.0 times less return on investment than Apple. In addition to that, Palo Alto is 1.52 times more volatile than Apple Inc. It trades about 0.14 of its total potential returns per unit of risk. Apple Inc is currently generating about 0.22 per unit of volatility. If you would invest  413,139  in Apple Inc on September 17, 2024 and sell it today you would earn a total of  86,377  from holding Apple Inc or generate 20.91% return on investment over 90 days.

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

Palo Alto Networks  vs.  Apple Inc

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. In spite of fairly weak basic indicators, Palo Alto showed solid returns over the last few months and may actually be approaching a breakup point.

Apple Inc

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Apple Inc are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Apple showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Palo Alto and Apple

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

The idea behind Palo Alto Networks and Apple 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.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.