Correlation Between Tile Shop and Datadog

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

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

Diversification Opportunities for Tile Shop and Datadog

0.34

Correlation Coefficient

Tile Shop  Datadog

Weak diversification

The 3 months correlation between Tile and Datadog is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Tile Shop Holdings and Datadog in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Datadog and Tile Shop 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 Tile Shop Holdings are associated (or correlated) with Datadog. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Datadog has no effect on the direction of Tile Shop i.e., Tile Shop and Datadog go up and down completely randomly.

Pair Corralation between Tile Shop and Datadog

Assuming the 90 days trading horizon Tile Shop is expected to generate 1.25 times less return on investment than Datadog. But when comparing it to its historical volatility, Tile Shop Holdings is 1.11 times less risky than Datadog. It trades about 0.1 of its potential returns per unit of risk. Datadog is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  11,406  in Datadog on October 25, 2024 and sell it today you would earn a total of  2,008  from holding Datadog or generate 17.6% return on investment over 90 days.

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

Tile Shop Holdings  vs.  Datadog

Tile Shop Holdings

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tile Shop Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Tile Shop unveiled solid returns over the last few months and may actually be approaching a breakup point.

Datadog

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Datadog are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Datadog reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tile Shop and Datadog

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

The idea behind Tile Shop Holdings and Datadog 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.