Correlation Between PayPal Holdings and Smith Micro

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

By analyzing existing cross correlation between PayPal Holdings and Smith Micro Software, you can compare the effects of market volatilities on PayPal Holdings and Smith Micro 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 Smith Micro. Check out your portfolio center. Please also check ongoing floating volatility patterns of PayPal Holdings and Smith Micro.

Diversification Opportunities for PayPal Holdings and Smith Micro

0.49

Correlation Coefficient

PayPal Holdings  Smith Micro

Very weak diversification

The 3 months correlation between PayPal and Smith is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding PayPal Holdings and Smith Micro Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smith Micro Software 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 Smith Micro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smith Micro Software has no effect on the direction of PayPal Holdings i.e., PayPal Holdings and Smith Micro go up and down completely randomly.

Pair Corralation between PayPal Holdings and Smith Micro

Given the investment horizon of 90 days PayPal Holdings is expected to generate 0.31 times more return on investment than Smith Micro. However, PayPal Holdings is 3.22 times less risky than Smith Micro. It trades about -0.13 of its potential returns per unit of risk. Smith Micro Software is currently generating about -0.07 per unit of risk. If you would invest  8,543  in PayPal Holdings on December 28, 2024 and sell it today you would lose (1,657) from holding PayPal Holdings or give up 19.4% of portfolio value over 90 days.

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

PayPal Holdings  vs.  Smith Micro Software

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 weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Smith Micro Software

Risk-Adjusted Performance

Very Weak

Over the last 90 days Smith Micro Software has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with PayPal Holdings and Smith Micro

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

The idea behind PayPal Holdings and Smith Micro Software 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.