Correlation Between Clearfield and Desktop Metal

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

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

Diversification Opportunities for Clearfield and Desktop Metal

0.68

Correlation Coefficient

Clearfield  Desktop Metal

Poor diversification

The 3 months correlation between Clearfield and Desktop is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Clearfield and Desktop Metal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Desktop Metal and Clearfield 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 Clearfield are associated (or correlated) with Desktop Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Desktop Metal has no effect on the direction of Clearfield i.e., Clearfield and Desktop Metal go up and down completely randomly.

Pair Corralation between Clearfield and Desktop Metal

Given the investment horizon of 90 days Clearfield is expected to generate 0.67 times more return on investment than Desktop Metal. However, Clearfield is 1.5 times less risky than Desktop Metal. It trades about -0.05 of its potential returns per unit of risk. Desktop Metal is currently generating about -0.1 per unit of risk. If you would invest  3,853  in Clearfield on September 25, 2024 and sell it today you would lose (730.00) from holding Clearfield or give up 18.95% of portfolio value over 90 days.

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

Clearfield  vs.  Desktop Metal

Clearfield

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Clearfield has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Desktop Metal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Desktop Metal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Clearfield and Desktop Metal

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

The idea behind Clearfield and Desktop Metal 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.