Correlation Between Brilliant Earth and Digital Brands

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

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

Diversification Opportunities for Brilliant Earth and Digital Brands

0.54

Correlation Coefficient

Brilliant Earth  Digital Brands

Very weak diversification

The 3 months correlation between Brilliant and Digital is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Brilliant Earth Group and Digital Brands Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital Brands Group and Brilliant Earth 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 Brilliant Earth Group are associated (or correlated) with Digital Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital Brands Group has no effect on the direction of Brilliant Earth i.e., Brilliant Earth and Digital Brands go up and down completely randomly.

Pair Corralation between Brilliant Earth and Digital Brands

Given the investment horizon of 90 days Brilliant Earth Group is expected to generate 0.31 times more return on investment than Digital Brands. However, Brilliant Earth Group is 3.24 times less risky than Digital Brands. It trades about 0.0 of its potential returns per unit of risk. Digital Brands Group is currently generating about -0.14 per unit of risk. If you would invest  217.00  in Brilliant Earth Group on September 19, 2024 and sell it today you would lose (17.00) from holding Brilliant Earth Group or give up 7.83% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.21%
Values	Daily Returns

Brilliant Earth Group  vs.  Digital Brands Group

Brilliant Earth Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brilliant Earth Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's essential indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Digital Brands Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Digital Brands Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Brilliant Earth and Digital Brands

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

The idea behind Brilliant Earth Group and Digital Brands Group 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .