Correlation Between Palo Alto and Bridgeline Digital

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

Diversification Opportunities for Palo Alto and Bridgeline Digital

0.05

Correlation Coefficient

Palo Alto  Bridgeline Digital

Significant diversification

The 3 months correlation between Palo and Bridgeline is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Palo Alto Networks and Bridgeline Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bridgeline Digital 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 Bridgeline Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bridgeline Digital has no effect on the direction of Palo Alto i.e., Palo Alto and Bridgeline Digital go up and down completely randomly.

Pair Corralation between Palo Alto and Bridgeline Digital

Given the investment horizon of 90 days Palo Alto Networks is expected to generate 0.33 times more return on investment than Bridgeline Digital. However, Palo Alto Networks is 3.06 times less risky than Bridgeline Digital. It trades about -0.03 of its potential returns per unit of risk. Bridgeline Digital is currently generating about -0.01 per unit of risk. If you would invest  18,420  in Palo Alto Networks on December 29, 2024 and sell it today you would lose (976.00) from holding Palo Alto Networks or give up 5.3% of portfolio value over 90 days.

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

Palo Alto Networks  vs.  Bridgeline Digital

Palo Alto Networks

Risk-Adjusted Performance

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 fairly stable basic indicators, Palo Alto is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Bridgeline Digital

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bridgeline Digital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Bridgeline Digital is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Palo Alto and Bridgeline Digital

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

The idea behind Palo Alto Networks and Bridgeline Digital 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.