Correlation Between Palo Alto and Snap On

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

Diversification Opportunities for Palo Alto and Snap On

0.8

Correlation Coefficient

Palo Alto  Snap On

Very poor diversification

The 3 months correlation between Palo and Snap is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Palo Alto Networks and Snap On in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Snap On 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 Snap On. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Snap On has no effect on the direction of Palo Alto i.e., Palo Alto and Snap On go up and down completely randomly.

Pair Corralation between Palo Alto and Snap On

Given the investment horizon of 90 days Palo Alto Networks is expected to under-perform the Snap On. In addition to that, Palo Alto is 2.02 times more volatile than Snap On. It trades about -0.21 of its total potential returns per unit of risk. Snap On is currently generating about -0.32 per unit of volatility. If you would invest  35,460  in Snap On on October 9, 2024 and sell it today you would lose (2,002) from holding Snap On or give up 5.65% of portfolio value over 90 days.

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

Palo Alto Networks  vs.  Snap On

Palo Alto Networks

Risk-Adjusted Performance

0 of 100

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.

Snap On

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Snap On are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Snap On sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Palo Alto and Snap On

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

The idea behind Palo Alto Networks and Snap On 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.