Correlation Between Palo Alto and Arax Holdings

Can any of the company-specific risk be diversified away by investing in both Palo Alto and Arax Holdings 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 Arax Holdings 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 Arax Holdings Corp, you can compare the effects of market volatilities on Palo Alto and Arax Holdings 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 Arax Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Palo Alto and Arax Holdings.

Diversification Opportunities for Palo Alto and Arax Holdings

-0.33

Correlation Coefficient

Palo Alto  Arax Holdings

Very good diversification

The 3 months correlation between Palo and Arax is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Palo Alto Networks and Arax Holdings Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arax Holdings Corp 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 Arax Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arax Holdings Corp has no effect on the direction of Palo Alto i.e., Palo Alto and Arax Holdings go up and down completely randomly.

Pair Corralation between Palo Alto and Arax Holdings

Given the investment horizon of 90 days Palo Alto is expected to generate 5.33 times less return on investment than Arax Holdings. But when comparing it to its historical volatility, Palo Alto Networks is 6.3 times less risky than Arax Holdings. It trades about 0.08 of its potential returns per unit of risk. Arax Holdings Corp is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  60.00  in Arax Holdings Corp on October 11, 2024 and sell it today you would lose (6.00) from holding Arax Holdings Corp or give up 10.0% of portfolio value over 90 days.

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

Palo Alto Networks  vs.  Arax Holdings Corp

Palo Alto Networks

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Palo Alto Networks has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Arax Holdings Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Arax Holdings Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Arax Holdings unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Palo Alto and Arax Holdings

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

The idea behind Palo Alto Networks and Arax Holdings Corp 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.