Correlation Between Planet Labs and Axon Enterprise

Can any of the company-specific risk be diversified away by investing in both Planet Labs and Axon Enterprise 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 Planet Labs and Axon Enterprise into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Planet Labs PBC and Axon Enterprise, you can compare the effects of market volatilities on Planet Labs and Axon Enterprise 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 Planet Labs with a short position of Axon Enterprise. Check out your portfolio center. Please also check ongoing floating volatility patterns of Planet Labs and Axon Enterprise.

Diversification Opportunities for Planet Labs and Axon Enterprise

0.71

Correlation Coefficient

Planet Labs  Axon Enterprise

Poor diversification

The 3 months correlation between Planet and Axon is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Planet Labs PBC and Axon Enterprise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Axon Enterprise and Planet Labs 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 Planet Labs PBC are associated (or correlated) with Axon Enterprise. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Axon Enterprise has no effect on the direction of Planet Labs i.e., Planet Labs and Axon Enterprise go up and down completely randomly.

Pair Corralation between Planet Labs and Axon Enterprise

Allowing for the 90-day total investment horizon Planet Labs PBC is expected to under-perform the Axon Enterprise. In addition to that, Planet Labs is 1.44 times more volatile than Axon Enterprise. It trades about -0.02 of its total potential returns per unit of risk. Axon Enterprise is currently generating about -0.02 per unit of volatility. If you would invest  61,098  in Axon Enterprise on December 27, 2024 and sell it today you would lose (6,033) from holding Axon Enterprise or give up 9.87% of portfolio value over 90 days.

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

Planet Labs PBC  vs.  Axon Enterprise

Planet Labs PBC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Planet Labs PBC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Planet Labs is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Axon Enterprise

Risk-Adjusted Performance

Very Weak

Over the last 90 days Axon Enterprise has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Axon Enterprise is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Planet Labs and Axon Enterprise

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

The idea behind Planet Labs PBC and Axon Enterprise 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.