Correlation Between Direct Digital and Lendway

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

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

Diversification Opportunities for Direct Digital and Lendway

-0.43

Correlation Coefficient

Direct Digital  Lendway

Very good diversification

The 3 months correlation between Direct and Lendway is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Direct Digital Holdings and Lendway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lendway and Direct Digital 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 Direct Digital Holdings are associated (or correlated) with Lendway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lendway has no effect on the direction of Direct Digital i.e., Direct Digital and Lendway go up and down completely randomly.

Pair Corralation between Direct Digital and Lendway

Given the investment horizon of 90 days Direct Digital Holdings is expected to generate 9.65 times more return on investment than Lendway. However, Direct Digital is 9.65 times more volatile than Lendway. It trades about 0.04 of its potential returns per unit of risk. Lendway is currently generating about -0.01 per unit of risk. If you would invest  511.00  in Direct Digital Holdings on October 21, 2024 and sell it today you would lose (382.00) from holding Direct Digital Holdings or give up 74.76% of portfolio value over 90 days.

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

Direct Digital Holdings  vs.  Lendway

Direct Digital Holdings

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Direct Digital Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, Direct Digital unveiled solid returns over the last few months and may actually be approaching a breakup point.

Lendway

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lendway are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Lendway showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Direct Digital and Lendway

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

The idea behind Direct Digital Holdings and Lendway 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.