Correlation Between PayPal Holdings and WA Kaolin

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

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

Diversification Opportunities for PayPal Holdings and WA Kaolin

0.55

Correlation Coefficient

PayPal Holdings  WA Kaolin

Very weak diversification

The 3 months correlation between PayPal and WAK is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding PayPal Holdings and WA Kaolin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WA Kaolin and PayPal Holdings 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 PayPal Holdings are associated (or correlated) with WA Kaolin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WA Kaolin has no effect on the direction of PayPal Holdings i.e., PayPal Holdings and WA Kaolin go up and down completely randomly.

Pair Corralation between PayPal Holdings and WA Kaolin

Given the investment horizon of 90 days PayPal Holdings is expected to generate 0.61 times more return on investment than WA Kaolin. However, PayPal Holdings is 1.64 times less risky than WA Kaolin. It trades about 0.22 of its potential returns per unit of risk. WA Kaolin is currently generating about 0.09 per unit of risk. If you would invest  7,036  in PayPal Holdings on September 12, 2024 and sell it today you would earn a total of  2,037  from holding PayPal Holdings or generate 28.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

PayPal Holdings  vs.  WA Kaolin

PayPal Holdings

Risk-Adjusted Performance

17 of 100

Solid

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

WA Kaolin

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WA Kaolin are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward-looking signals, WA Kaolin unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PayPal Holdings and WA Kaolin

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

The idea behind PayPal Holdings and WA Kaolin 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.