Correlation Between Aspen Technology and Datadog

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

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

Diversification Opportunities for Aspen Technology and Datadog

0.84

Correlation Coefficient

Aspen Technology  Datadog

Very poor diversification

The 3 months correlation between Aspen and Datadog is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Aspen Technology and Datadog in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Datadog and Aspen Technology 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 Aspen Technology 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 Aspen Technology i.e., Aspen Technology and Datadog go up and down completely randomly.

Pair Corralation between Aspen Technology and Datadog

Given the investment horizon of 90 days Aspen Technology is expected to generate 4.98 times less return on investment than Datadog. But when comparing it to its historical volatility, Aspen Technology is 2.35 times less risky than Datadog. It trades about 0.1 of its potential returns per unit of risk. Datadog is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  11,193  in Datadog on September 17, 2024 and sell it today you would earn a total of  4,110  from holding Datadog or generate 36.72% return on investment over 90 days.

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

Aspen Technology  vs.  Datadog

Aspen Technology

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aspen Technology are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Aspen Technology may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Datadog

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Datadog are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Datadog reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aspen Technology and Datadog

The main advantage of trading using opposite Aspen Technology and Datadog positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aspen Technology 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 Aspen Technology 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.

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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.