Correlation Between Datadog and ECD Automotive

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

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

Diversification Opportunities for Datadog and ECD Automotive

0.78

Correlation Coefficient

Datadog  ECD Automotive

Poor diversification

The 3 months correlation between Datadog and ECD is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Datadog and ECD Automotive Design in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ECD Automotive Design and Datadog 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 Datadog are associated (or correlated) with ECD Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ECD Automotive Design has no effect on the direction of Datadog i.e., Datadog and ECD Automotive go up and down completely randomly.

Pair Corralation between Datadog and ECD Automotive

Given the investment horizon of 90 days Datadog is expected to under-perform the ECD Automotive. But the stock apears to be less risky and, when comparing its historical volatility, Datadog is 2.07 times less risky than ECD Automotive. The stock trades about -0.23 of its potential returns per unit of risk. The ECD Automotive Design is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  97.00  in ECD Automotive Design on December 19, 2024 and sell it today you would lose (29.00) from holding ECD Automotive Design or give up 29.9% of portfolio value over 90 days.

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

Datadog  vs.  ECD Automotive Design

Datadog

Risk-Adjusted Performance

Very Weak

Over the last 90 days Datadog 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 basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

ECD Automotive Design

Risk-Adjusted Performance

Very Weak

Over the last 90 days ECD Automotive Design 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 fundamental indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Datadog and ECD Automotive

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

The idea behind Datadog and ECD Automotive Design 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.

Check out your portfolio center.

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 .