Correlation Between Digital Brands and Brilliant Earth

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

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

Diversification Opportunities for Digital Brands and Brilliant Earth

0.49

Correlation Coefficient

Digital Brands  Brilliant Earth

Very weak diversification

The 3 months correlation between Digital and Brilliant is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Digital Brands Group and Brilliant Earth Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brilliant Earth Group and Digital Brands 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 Digital Brands Group are associated (or correlated) with Brilliant Earth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brilliant Earth Group has no effect on the direction of Digital Brands i.e., Digital Brands and Brilliant Earth go up and down completely randomly.

Pair Corralation between Digital Brands and Brilliant Earth

Given the investment horizon of 90 days Digital Brands Group is expected to under-perform the Brilliant Earth. In addition to that, Digital Brands is 3.14 times more volatile than Brilliant Earth Group. It trades about -0.09 of its total potential returns per unit of risk. Brilliant Earth Group is currently generating about -0.02 per unit of volatility. If you would invest  431.00  in Brilliant Earth Group on September 20, 2024 and sell it today you would lose (236.00) from holding Brilliant Earth Group or give up 54.76% of portfolio value over 90 days.

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

Digital Brands Group  vs.  Brilliant Earth Group

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 weak 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.

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.

Pair Trading with Digital Brands and Brilliant Earth

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

The idea behind Digital Brands Group and Brilliant Earth 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.