Correlation Between Palo Alto and Pearson Plc

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

Diversification Opportunities for Palo Alto and Pearson Plc

0.74

Correlation Coefficient

Palo Alto  Pearson Plc

Poor diversification

The 3 months correlation between Palo and Pearson is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Palo Alto Networks and Pearson Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pearson 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 Pearson Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pearson Plc has no effect on the direction of Palo Alto i.e., Palo Alto and Pearson Plc go up and down completely randomly.

Pair Corralation between Palo Alto and Pearson Plc

If you would invest  36,112  in Palo Alto Networks on September 5, 2024 and sell it today you would earn a total of  3,147  from holding Palo Alto Networks or generate 8.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	4.76%
Values	Daily Returns

Palo Alto Networks  vs.  Pearson Plc

Palo Alto Networks

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Palo Alto Networks are ranked lower than 9 (%) 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.

Pearson Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pearson Plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Pearson Plc is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Palo Alto and Pearson Plc

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

The idea behind Palo Alto Networks and Pearson 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.