Correlation Between Nutanix and Cloudflare

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

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

Diversification Opportunities for Nutanix and Cloudflare

0.82

Correlation Coefficient

Nutanix  Cloudflare

Very poor diversification

The 3 months correlation between Nutanix and Cloudflare is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Nutanix and Cloudflare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cloudflare and Nutanix 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 Nutanix are associated (or correlated) with Cloudflare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cloudflare has no effect on the direction of Nutanix i.e., Nutanix and Cloudflare go up and down completely randomly.

Pair Corralation between Nutanix and Cloudflare

Given the investment horizon of 90 days Nutanix is expected to generate 3.82 times less return on investment than Cloudflare. But when comparing it to its historical volatility, Nutanix is 1.19 times less risky than Cloudflare. It trades about 0.05 of its potential returns per unit of risk. Cloudflare is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  7,811  in Cloudflare on September 1, 2024 and sell it today you would earn a total of  2,172  from holding Cloudflare or generate 27.81% return on investment over 90 days.

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

Nutanix  vs.  Cloudflare

Nutanix

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nutanix are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Nutanix may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Cloudflare

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cloudflare are ranked lower than 12 (%) 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.

Pair Trading with Nutanix and Cloudflare

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

The idea behind Nutanix and Cloudflare 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.