Correlation Between Applied Digital and 71713UAW2

Can any of the company-specific risk be diversified away by investing in both Applied Digital and 71713UAW2 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 71713UAW2 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Applied Digital and PHARMACIA P 66, you can compare the effects of market volatilities on Applied Digital and 71713UAW2 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 71713UAW2. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Digital and 71713UAW2.

Diversification Opportunities for Applied Digital and 71713UAW2

0.03

Correlation Coefficient

Applied Digital  71713UAW2

Significant diversification

The 3 months correlation between Applied and 71713UAW2 is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Applied Digital and PHARMACIA P 66 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PHARMACIA P 66 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 71713UAW2. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PHARMACIA P 66 has no effect on the direction of Applied Digital i.e., Applied Digital and 71713UAW2 go up and down completely randomly.

Pair Corralation between Applied Digital and 71713UAW2

Given the investment horizon of 90 days Applied Digital is expected to generate 13.09 times more return on investment than 71713UAW2. However, Applied Digital is 13.09 times more volatile than PHARMACIA P 66. It trades about 0.07 of its potential returns per unit of risk. PHARMACIA P 66 is currently generating about -0.02 per unit of risk. If you would invest  225.00  in Applied Digital on October 7, 2024 and sell it today you would earn a total of  686.00  from holding Applied Digital or generate 304.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	69.96%
Values	Daily Returns

Applied Digital  vs.  PHARMACIA P 66

Applied Digital

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Digital are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting essential indicators, Applied Digital exhibited solid returns over the last few months and may actually be approaching a breakup point.

PHARMACIA P 66

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PHARMACIA P 66 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 71713UAW2 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Applied Digital and 71713UAW2

The main advantage of trading using opposite Applied Digital and 71713UAW2 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Digital position performs unexpectedly, 71713UAW2 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 71713UAW2 will offset losses from the drop in 71713UAW2's long position.

The idea behind Applied Digital and PHARMACIA P 66 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.