Correlation Between Palo Alto and Palantir Technologies

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

Diversification Opportunities for Palo Alto and Palantir Technologies

0.33

Correlation Coefficient

Palo Alto  Palantir Technologies

Weak diversification

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

Pair Corralation between Palo Alto and Palantir Technologies

Given the investment horizon of 90 days Palo Alto Networks is expected to under-perform the Palantir Technologies. But the stock apears to be less risky and, when comparing its historical volatility, Palo Alto Networks is 2.55 times less risky than Palantir Technologies. The stock trades about -0.01 of its potential returns per unit of risk. The Palantir Technologies Class is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  6,605  in Palantir Technologies Class on November 27, 2024 and sell it today you would earn a total of  2,180  from holding Palantir Technologies Class or generate 33.01% return on investment over 90 days.

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

Palo Alto Networks  vs.  Palantir Technologies Class

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 newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Palantir Technologies

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Palantir Technologies Class are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, Palantir Technologies reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Palo Alto and Palantir Technologies

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

The idea behind Palo Alto Networks and Palantir Technologies Class 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.