Correlation Between Block and Okta
Can any of the company-specific risk be diversified away by investing in both Block and Okta 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 Block and Okta into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Block Inc and Okta Inc, you can compare the effects of market volatilities on Block and Okta 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 Block with a short position of Okta. Check out your portfolio center. Please also check ongoing floating volatility patterns of Block and Okta.
Diversification Opportunities for Block and Okta
Very poor diversification
The 3 months correlation between Block and Okta is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Block Inc and Okta Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Okta Inc and Block 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 Block Inc are associated (or correlated) with Okta. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Okta Inc has no effect on the direction of Block i.e., Block and Okta go up and down completely randomly.
Pair Corralation between Block and Okta
Assuming the 90 days trading horizon Block Inc is expected to generate 1.14 times more return on investment than Okta. However, Block is 1.14 times more volatile than Okta Inc. It trades about 0.05 of its potential returns per unit of risk. Okta Inc is currently generating about 0.04 per unit of risk. If you would invest 1,217 in Block Inc on September 12, 2024 and sell it today you would earn a total of 1,063 from holding Block Inc or generate 87.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.4% |
| Values | Daily Returns |
Block Inc vs. Okta Inc
Performance |
| Timeline |
| Block Inc |
| Okta Inc |
Block and Okta Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Block and Okta
The main advantage of trading using opposite Block and Okta positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Block position performs unexpectedly, Okta 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 Okta will offset losses from the drop in Okta's long position.The idea behind Block Inc and Okta 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.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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.
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