Correlation Between Palo Alto and Copper

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

Diversification Opportunities for Palo Alto and Copper

-0.55

Correlation Coefficient

Palo Alto  Copper

Excellent diversification

The 3 months correlation between Palo and Copper is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Palo Alto Networks and Copper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Copper 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 Copper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Copper has no effect on the direction of Palo Alto i.e., Palo Alto and Copper go up and down completely randomly.

Pair Corralation between Palo Alto and Copper

Given the investment horizon of 90 days Palo Alto Networks is expected to generate 1.93 times more return on investment than Copper. However, Palo Alto is 1.93 times more volatile than Copper. It trades about 0.09 of its potential returns per unit of risk. Copper is currently generating about 0.02 per unit of risk. If you would invest  15,259  in Palo Alto Networks on September 5, 2024 and sell it today you would earn a total of  24,000  from holding Palo Alto Networks or generate 157.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	97.25%
Values	Daily Returns

Palo Alto Networks  vs.  Copper

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.

Copper

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Copper are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Copper is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Palo Alto and Copper

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

The idea behind Palo Alto Networks and Copper 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.