Correlation Between Palo Alto and Toast

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

Diversification Opportunities for Palo Alto and Toast

0.51

Correlation Coefficient

Palo Alto  Toast

Very weak diversification

The 3 months correlation between Palo and Toast is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Palo Alto Networks and Toast Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toast 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 Toast. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toast Inc has no effect on the direction of Palo Alto i.e., Palo Alto and Toast go up and down completely randomly.

Pair Corralation between Palo Alto and Toast

Given the investment horizon of 90 days Palo Alto is expected to generate 1.22 times less return on investment than Toast. But when comparing it to its historical volatility, Palo Alto Networks is 1.36 times less risky than Toast. It trades about 0.08 of its potential returns per unit of risk. Toast Inc is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,638  in Toast Inc on December 2, 2024 and sell it today you would earn a total of  222.00  from holding Toast Inc or generate 6.1% return on investment over 90 days.

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

Palo Alto Networks  vs.  Toast Inc

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.

Toast Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Toast Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Palo Alto and Toast

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

The idea behind Palo Alto Networks and Toast 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.