Correlation Between Palo Alto and Persimmon Plc

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

Diversification Opportunities for Palo Alto and Persimmon Plc

-0.85

Correlation Coefficient

Palo Alto  Persimmon Plc

Pay attention - limited upside

The 3 months correlation between Palo and Persimmon is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding Palo Alto Networks and Persimmon Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Persimmon Plc 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 Persimmon Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Persimmon Plc has no effect on the direction of Palo Alto i.e., Palo Alto and Persimmon Plc go up and down completely randomly.

Pair Corralation between Palo Alto and Persimmon Plc

Given the investment horizon of 90 days Palo Alto Networks is expected to generate 0.86 times more return on investment than Persimmon Plc. However, Palo Alto Networks is 1.16 times less risky than Persimmon Plc. It trades about 0.11 of its potential returns per unit of risk. Persimmon Plc is currently generating about -0.17 per unit of risk. If you would invest  34,516  in Palo Alto Networks on September 12, 2024 and sell it today you would earn a total of  4,460  from holding Palo Alto Networks or generate 12.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Palo Alto Networks  vs.  Persimmon Plc

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

Persimmon Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Persimmon Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's primary indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Palo Alto and Persimmon Plc

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

The idea behind Palo Alto Networks and Persimmon Plc 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.