Correlation Between Cloudflare and Pagaya Technologies

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

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

Diversification Opportunities for Cloudflare and Pagaya Technologies

0.7

Correlation Coefficient

Cloudflare  Pagaya Technologies

Poor diversification

The 3 months correlation between Cloudflare and Pagaya is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Cloudflare and Pagaya Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pagaya Technologies and Cloudflare 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 Cloudflare are associated (or correlated) with Pagaya Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pagaya Technologies has no effect on the direction of Cloudflare i.e., Cloudflare and Pagaya Technologies go up and down completely randomly.

Pair Corralation between Cloudflare and Pagaya Technologies

Considering the 90-day investment horizon Cloudflare is expected to generate 1.83 times less return on investment than Pagaya Technologies. But when comparing it to its historical volatility, Cloudflare is 1.66 times less risky than Pagaya Technologies. It trades about 0.05 of its potential returns per unit of risk. Pagaya Technologies is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  951.00  in Pagaya Technologies on December 29, 2024 and sell it today you would earn a total of  115.00  from holding Pagaya Technologies or generate 12.09% return on investment over 90 days.

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

Cloudflare  vs.  Pagaya Technologies

Cloudflare

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cloudflare are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal technical and fundamental indicators, Cloudflare unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pagaya Technologies

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pagaya Technologies are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Pagaya Technologies showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cloudflare and Pagaya Technologies

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

The idea behind Cloudflare and Pagaya Technologies 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.