Correlation Between IPC MEXICO and Palo Alto

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

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

Diversification Opportunities for IPC MEXICO and Palo Alto

-0.74

Correlation Coefficient

IPC MEXICO  Palo Alto

Pay attention - limited upside

The 3 months correlation between IPC and Palo is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding IPC MEXICO 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 IPC MEXICO 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 IPC MEXICO 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 IPC MEXICO i.e., IPC MEXICO and Palo Alto go up and down completely randomly.

Pair Corralation between IPC MEXICO and Palo Alto

Assuming the 90 days trading horizon IPC MEXICO is expected to generate 7.58 times less return on investment than Palo Alto. But when comparing it to its historical volatility, IPC MEXICO is 2.59 times less risky than Palo Alto. It trades about 0.04 of its potential returns per unit of risk. Palo Alto Networks is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  388,750  in Palo Alto Networks on September 19, 2024 and sell it today you would earn a total of  15,250  from holding Palo Alto Networks or generate 3.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	90.91%
Values	Daily Returns

IPC MEXICO  vs.  Palo Alto Networks

Pair Trading with IPC MEXICO and Palo Alto

The main advantage of trading using opposite IPC MEXICO and Palo Alto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IPC MEXICO 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 IPC MEXICO 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.

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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.