Correlation Between Applied Digital and Mentor Capital

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

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

Diversification Opportunities for Applied Digital and Mentor Capital

0.35

Correlation Coefficient

Applied Digital  Mentor Capital

Weak diversification

The 3 months correlation between Applied and Mentor is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Applied Digital and Mentor Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mentor Capital and Applied Digital 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 Applied Digital are associated (or correlated) with Mentor Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mentor Capital has no effect on the direction of Applied Digital i.e., Applied Digital and Mentor Capital go up and down completely randomly.

Pair Corralation between Applied Digital and Mentor Capital

Given the investment horizon of 90 days Applied Digital is expected to generate 0.97 times more return on investment than Mentor Capital. However, Applied Digital is 1.03 times less risky than Mentor Capital. It trades about 0.0 of its potential returns per unit of risk. Mentor Capital is currently generating about -0.01 per unit of risk. If you would invest  797.00  in Applied Digital on December 28, 2024 and sell it today you would lose (144.00) from holding Applied Digital or give up 18.07% of portfolio value over 90 days.

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

Applied Digital  vs.  Mentor Capital

Applied Digital

Risk-Adjusted Performance

Very Weak

Over the last 90 days Applied Digital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Applied Digital is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Mentor Capital

Risk-Adjusted Performance

Very Weak

Over the last 90 days Mentor Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Mentor Capital is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Applied Digital and Mentor Capital

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

The idea behind Applied Digital and Mentor Capital 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.