Correlation Between PayPal Holdings and SoFi Technologies

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

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

Diversification Opportunities for PayPal Holdings and SoFi Technologies

0.85

Correlation Coefficient

PayPal Holdings  SoFi Technologies

Very poor diversification

The 3 months correlation between PayPal and SoFi is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding PayPal Holdings and SoFi Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SoFi Technologies 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 SoFi Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SoFi Technologies has no effect on the direction of PayPal Holdings i.e., PayPal Holdings and SoFi Technologies go up and down completely randomly.

Pair Corralation between PayPal Holdings and SoFi Technologies

Given the investment horizon of 90 days PayPal Holdings is expected to generate 4.13 times less return on investment than SoFi Technologies. But when comparing it to its historical volatility, PayPal Holdings is 1.73 times less risky than SoFi Technologies. It trades about 0.17 of its potential returns per unit of risk. SoFi Technologies is currently generating about 0.41 of returns per unit of risk over similar time horizon. If you would invest  753.00  in SoFi Technologies on September 1, 2024 and sell it today you would earn a total of  888.00  from holding SoFi Technologies or generate 117.93% return on investment over 90 days.

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

PayPal Holdings  vs.  SoFi Technologies

PayPal Holdings

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PayPal Holdings are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, PayPal Holdings disclosed solid returns over the last few months and may actually be approaching a breakup point.

SoFi Technologies

Risk-Adjusted Performance

32 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in SoFi Technologies are ranked lower than 32 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating technical and fundamental indicators, SoFi Technologies demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PayPal Holdings and SoFi Technologies

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

The idea behind PayPal Holdings and SoFi Technologies 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.