Correlation Between Palo Alto and Allot Communications

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

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

Diversification Opportunities for Palo Alto and Allot Communications

0.1

Correlation Coefficient

Palo Alto  Allot Communications

Average diversification

The 3 months correlation between Palo and Allot is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Palo Alto Networks and Allot Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allot Communications and Palo Alto 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 Palo Alto Networks are associated (or correlated) with Allot Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allot Communications has no effect on the direction of Palo Alto i.e., Palo Alto and Allot Communications go up and down completely randomly.

Pair Corralation between Palo Alto and Allot Communications

Given the investment horizon of 90 days Palo Alto is expected to generate 4.49 times less return on investment than Allot Communications. But when comparing it to its historical volatility, Palo Alto Networks is 2.74 times less risky than Allot Communications. It trades about 0.03 of its potential returns per unit of risk. Allot Communications is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  592.00  in Allot Communications on December 27, 2024 and sell it today you would earn a total of  32.00  from holding Allot Communications or generate 5.41% return on investment over 90 days.

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

Palo Alto Networks  vs.  Allot Communications

Palo Alto Networks

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Palo Alto Networks are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Palo Alto is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Allot Communications

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Allot Communications are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting essential indicators, Allot Communications unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Palo Alto and Allot Communications

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

The idea behind Palo Alto Networks and Allot Communications 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.