Correlation Between Align Technology and Xero

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

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

Diversification Opportunities for Align Technology and Xero

0.79

Correlation Coefficient

Align Technology  Xero

Poor diversification

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

Pair Corralation between Align Technology and Xero

Assuming the 90 days horizon Align Technology is expected to generate 9.18 times less return on investment than Xero. In addition to that, Align Technology is 1.17 times more volatile than Xero. It trades about 0.01 of its total potential returns per unit of risk. Xero is currently generating about 0.07 per unit of volatility. If you would invest  4,740  in Xero on October 9, 2024 and sell it today you would earn a total of  5,460  from holding Xero or generate 115.19% return on investment over 90 days.

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

Align Technology  vs.  Xero

Align Technology

Risk-Adjusted Performance

0 of 100

Very Weak

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

Xero

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xero are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Xero reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Align Technology and Xero

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

The idea behind Align Technology and Xero 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.