Correlation Between Digital Locations and SoundHound

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

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

Diversification Opportunities for Digital Locations and SoundHound

0.55

Correlation Coefficient

Digital Locations  SoundHound

Very weak diversification

The 3 months correlation between Digital and SoundHound is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Digital Locations and SoundHound AI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SoundHound AI and Digital Locations 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 Locations are associated (or correlated) with SoundHound. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SoundHound AI has no effect on the direction of Digital Locations i.e., Digital Locations and SoundHound go up and down completely randomly.

Pair Corralation between Digital Locations and SoundHound

Given the investment horizon of 90 days Digital Locations is expected to generate 1.78 times more return on investment than SoundHound. However, Digital Locations is 1.78 times more volatile than SoundHound AI. It trades about -0.09 of its potential returns per unit of risk. SoundHound AI is currently generating about -0.17 per unit of risk. If you would invest  0.05  in Digital Locations on December 29, 2024 and sell it today you would lose (0.04) from holding Digital Locations or give up 80.0% of portfolio value over 90 days.

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

Digital Locations  vs.  SoundHound AI

Digital Locations

Risk-Adjusted Performance

Very Weak

Over the last 90 days Digital Locations 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 basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

SoundHound AI

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Digital Locations and SoundHound

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

The idea behind Digital Locations and SoundHound AI 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.