Correlation Between Aluminum and Palo Alto

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

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

Diversification Opportunities for Aluminum and Palo Alto

-0.21

Correlation Coefficient

Aluminum  Palo Alto

Very good diversification

The 3 months correlation between Aluminum and Palo is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Aluminum of and Palo Alto Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Palo Alto Networks and Aluminum 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 Aluminum of are associated (or correlated) with Palo Alto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Palo Alto Networks has no effect on the direction of Aluminum i.e., Aluminum and Palo Alto go up and down completely randomly.

Pair Corralation between Aluminum and Palo Alto

Assuming the 90 days horizon Aluminum is expected to generate 1.24 times less return on investment than Palo Alto. In addition to that, Aluminum is 1.84 times more volatile than Palo Alto Networks. It trades about 0.03 of its total potential returns per unit of risk. Palo Alto Networks is currently generating about 0.06 per unit of volatility. If you would invest  16,930  in Palo Alto Networks on October 25, 2024 and sell it today you would earn a total of  1,076  from holding Palo Alto Networks or generate 6.36% return on investment over 90 days.

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

Aluminum of  vs.  Palo Alto Networks

Aluminum

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Aluminum of are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Aluminum may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Palo Alto Networks

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Palo Alto Networks are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Palo Alto may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Aluminum and Palo Alto

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

The idea behind Aluminum of and Palo Alto Networks 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 Correlations module to find global opportunities by holding instruments from different markets.