Correlation Between Palo Alto and Block

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

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

Diversification Opportunities for Palo Alto and Block

0.85

Correlation Coefficient

Palo Alto  Block

Very poor diversification

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

Pair Corralation between Palo Alto and Block

Given the investment horizon of 90 days Palo Alto is expected to generate 5.5 times less return on investment than Block. But when comparing it to its historical volatility, Palo Alto Networks is 1.84 times less risky than Block. It trades about 0.07 of its potential returns per unit of risk. Block Inc is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  7,391  in Block Inc on August 20, 2024 and sell it today you would earn a total of  1,039  from holding Block Inc or generate 14.06% return on investment over 90 days.

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

Palo Alto Networks  vs.  Block Inc

Palo Alto Networks

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Palo Alto Networks are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Palo Alto is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Block Inc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Block Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, Block reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Palo Alto and Block

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

The idea behind Palo Alto Networks and Block 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.