Correlation Between Root and PayPal Holdings
Can any of the company-specific risk be diversified away by investing in both Root and PayPal Holdings 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 Root and PayPal Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Root Inc and PayPal Holdings, you can compare the effects of market volatilities on Root and PayPal Holdings 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 Root with a short position of PayPal Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Root and PayPal Holdings.
Diversification Opportunities for Root and PayPal Holdings
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Root and PayPal is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Root Inc and PayPal Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PayPal Holdings and Root 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 Root Inc are associated (or correlated) with PayPal Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PayPal Holdings has no effect on the direction of Root i.e., Root and PayPal Holdings go up and down completely randomly.
Pair Corralation between Root and PayPal Holdings
Given the investment horizon of 90 days Root Inc is expected to generate 5.25 times more return on investment than PayPal Holdings. However, Root is 5.25 times more volatile than PayPal Holdings. It trades about 0.15 of its potential returns per unit of risk. PayPal Holdings is currently generating about 0.23 per unit of risk. If you would invest 4,036 in Root Inc on September 13, 2024 and sell it today you would earn a total of 4,112 from holding Root Inc or generate 101.88% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Root Inc vs. PayPal Holdings
Performance |
Timeline |
Root Inc |
PayPal Holdings |
Root and PayPal Holdings Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Root and PayPal Holdings
The main advantage of trading using opposite Root and PayPal Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Root position performs unexpectedly, PayPal Holdings 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 PayPal Holdings will offset losses from the drop in PayPal Holdings' long position.Root vs. Selective Insurance Group | Root vs. Donegal Group B | Root vs. Horace Mann Educators | Root vs. Global Indemnity PLC |
PayPal Holdings vs. SoFi Technologies | PayPal Holdings vs. Visa Class A | PayPal Holdings vs. Capital One Financial | PayPal Holdings vs. American Express |
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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