Correlation Between Applied Digital and 42704LAA2

Can any of the company-specific risk be diversified away by investing in both Applied Digital and 42704LAA2 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 42704LAA2 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Applied Digital and Herc Holdings 55, you can compare the effects of market volatilities on Applied Digital and 42704LAA2 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 42704LAA2. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Digital and 42704LAA2.

Diversification Opportunities for Applied Digital and 42704LAA2

0.21

Correlation Coefficient

Applied Digital  42704LAA2

Modest diversification

The 3 months correlation between Applied and 42704LAA2 is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Applied Digital and Herc Holdings 55 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Herc Holdings 55 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 42704LAA2. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Herc Holdings 55 has no effect on the direction of Applied Digital i.e., Applied Digital and 42704LAA2 go up and down completely randomly.

Pair Corralation between Applied Digital and 42704LAA2

Given the investment horizon of 90 days Applied Digital is expected to under-perform the 42704LAA2. In addition to that, Applied Digital is 17.6 times more volatile than Herc Holdings 55. It trades about 0.0 of its total potential returns per unit of risk. Herc Holdings 55 is currently generating about 0.05 per unit of volatility. If you would invest  9,938  in Herc Holdings 55 on December 5, 2024 and sell it today you would earn a total of  39.00  from holding Herc Holdings 55 or generate 0.39% return on investment over 90 days.

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

Applied Digital  vs.  Herc Holdings 55

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 conflicting performance in the last few months, the Stock's essential indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Herc Holdings 55

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Herc Holdings 55 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, 42704LAA2 is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Applied Digital and 42704LAA2

The main advantage of trading using opposite Applied Digital and 42704LAA2 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Digital position performs unexpectedly, 42704LAA2 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 42704LAA2 will offset losses from the drop in 42704LAA2's long position.

The idea behind Applied Digital and Herc Holdings 55 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.