Correlation Between StoneCo and Splunk

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

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

Diversification Opportunities for StoneCo and Splunk

-0.69

Correlation Coefficient

StoneCo  Splunk

Excellent diversification

The 3 months correlation between StoneCo and Splunk is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding StoneCo and Splunk Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Splunk Inc and StoneCo 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 StoneCo are associated (or correlated) with Splunk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Splunk Inc has no effect on the direction of StoneCo i.e., StoneCo and Splunk go up and down completely randomly.

Pair Corralation between StoneCo and Splunk

Given the investment horizon of 90 days StoneCo is expected to under-perform the Splunk. In addition to that, StoneCo is 1.34 times more volatile than Splunk Inc. It trades about 0.0 of its total potential returns per unit of risk. Splunk Inc is currently generating about 0.01 per unit of volatility. If you would invest  10,381  in Splunk Inc on September 27, 2024 and sell it today you would lose (23.00) from holding Splunk Inc or give up 0.22% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	24.53%
Values	Daily Returns

StoneCo  vs.  Splunk Inc

StoneCo

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days StoneCo has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Splunk Inc

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with StoneCo and Splunk

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

The idea behind StoneCo and Splunk 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.