Correlation Between PayPal Holdings and Applied Digital

Can any of the company-specific risk be diversified away by investing in both PayPal Holdings and Applied Digital 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 PayPal Holdings and Applied Digital into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between PayPal Holdings and Applied Digital, you can compare the effects of market volatilities on PayPal Holdings and Applied Digital 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 PayPal Holdings with a short position of Applied Digital. Check out your portfolio center. Please also check ongoing floating volatility patterns of PayPal Holdings and Applied Digital.

Diversification Opportunities for PayPal Holdings and Applied Digital

0.13

Correlation Coefficient

PayPal Holdings  Applied Digital

Average diversification

The 3 months correlation between PayPal and Applied is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding PayPal Holdings and Applied Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Digital and PayPal Holdings 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 PayPal Holdings are associated (or correlated) with Applied Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Digital has no effect on the direction of PayPal Holdings i.e., PayPal Holdings and Applied Digital go up and down completely randomly.

Pair Corralation between PayPal Holdings and Applied Digital

Given the investment horizon of 90 days PayPal Holdings is expected to under-perform the Applied Digital. But the stock apears to be less risky and, when comparing its historical volatility, PayPal Holdings is 2.91 times less risky than Applied Digital. The stock trades about -0.11 of its potential returns per unit of risk. The Applied Digital is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,010  in Applied Digital on November 28, 2024 and sell it today you would lose (215.00) from holding Applied Digital or give up 21.29% of portfolio value over 90 days.

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

PayPal Holdings  vs.  Applied Digital

PayPal Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days PayPal Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in March 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Applied Digital

Risk-Adjusted Performance

Very Weak

Over the last 90 days Applied Digital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's essential indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with PayPal Holdings and Applied Digital

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

The idea behind PayPal Holdings and Applied Digital 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.