Correlation Between Align Technology and Penumbra

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

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

Diversification Opportunities for Align Technology and Penumbra

-0.47

Correlation Coefficient

Align Technology  Penumbra

Very good diversification

The 3 months correlation between Align and Penumbra is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Align Technology and Penumbra in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Penumbra 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 Penumbra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Penumbra has no effect on the direction of Align Technology i.e., Align Technology and Penumbra go up and down completely randomly.

Pair Corralation between Align Technology and Penumbra

Given the investment horizon of 90 days Align Technology is expected to generate 4.25 times less return on investment than Penumbra. In addition to that, Align Technology is 1.03 times more volatile than Penumbra. It trades about 0.03 of its total potential returns per unit of risk. Penumbra is currently generating about 0.13 per unit of volatility. If you would invest  20,497  in Penumbra on September 2, 2024 and sell it today you would earn a total of  3,915  from holding Penumbra or generate 19.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Align Technology  vs.  Penumbra

Align Technology

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Align Technology are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Align Technology is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Penumbra

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Penumbra are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile technical and fundamental indicators, Penumbra displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Align Technology and Penumbra

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

The idea behind Align Technology and Penumbra 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.