Correlation Between Palo Alto and NOHO

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

Diversification Opportunities for Palo Alto and NOHO

-0.68

Correlation Coefficient

Palo Alto  NOHO

Excellent diversification

The 3 months correlation between Palo and NOHO is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Palo Alto Networks and NOHO Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NOHO Inc 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 NOHO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NOHO Inc has no effect on the direction of Palo Alto i.e., Palo Alto and NOHO go up and down completely randomly.

Pair Corralation between Palo Alto and NOHO

Given the investment horizon of 90 days Palo Alto is expected to generate 7.8 times less return on investment than NOHO. But when comparing it to its historical volatility, Palo Alto Networks is 13.0 times less risky than NOHO. It trades about 0.13 of its potential returns per unit of risk. NOHO Inc is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  0.03  in NOHO Inc on September 13, 2024 and sell it today you would lose (0.01) from holding NOHO Inc or give up 33.33% of portfolio value over 90 days.

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

Palo Alto Networks  vs.  NOHO Inc

Palo Alto Networks

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Palo Alto Networks are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Palo Alto showed solid returns over the last few months and may actually be approaching a breakup point.

NOHO Inc

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NOHO Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, NOHO disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Palo Alto and NOHO

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

The idea behind Palo Alto Networks and NOHO Inc 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.