Correlation Between DigitalOcean Holdings and Kratos Defense

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

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

Diversification Opportunities for DigitalOcean Holdings and Kratos Defense

-0.29

Correlation Coefficient

DigitalOcean Holdings  Kratos Defense

Very good diversification

The 3 months correlation between DigitalOcean and Kratos is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding DigitalOcean Holdings and Kratos Defense Security in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kratos Defense Security and DigitalOcean Holdings 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 DigitalOcean Holdings are associated (or correlated) with Kratos Defense. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kratos Defense Security has no effect on the direction of DigitalOcean Holdings i.e., DigitalOcean Holdings and Kratos Defense go up and down completely randomly.

Pair Corralation between DigitalOcean Holdings and Kratos Defense

Given the investment horizon of 90 days DigitalOcean Holdings is expected to generate 2.06 times less return on investment than Kratos Defense. In addition to that, DigitalOcean Holdings is 1.27 times more volatile than Kratos Defense Security. It trades about 0.04 of its total potential returns per unit of risk. Kratos Defense Security is currently generating about 0.1 per unit of volatility. If you would invest  2,043  in Kratos Defense Security on October 7, 2024 and sell it today you would earn a total of  705.00  from holding Kratos Defense Security or generate 34.51% return on investment over 90 days.

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

DigitalOcean Holdings  vs.  Kratos Defense Security

DigitalOcean Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

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

Kratos Defense Security

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Kratos Defense Security are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Kratos Defense unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DigitalOcean Holdings and Kratos Defense

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

The idea behind DigitalOcean Holdings and Kratos Defense Security 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.