Correlation Between Direct Digital and Paramount Global

Can any of the company-specific risk be diversified away by investing in both Direct Digital and Paramount Global 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 Paramount Global 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 Paramount Global Class, you can compare the effects of market volatilities on Direct Digital and Paramount Global 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 Paramount Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Digital and Paramount Global.

Diversification Opportunities for Direct Digital and Paramount Global

-0.34

Correlation Coefficient

Direct Digital  Paramount Global

Very good diversification

The 3 months correlation between Direct and Paramount is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Direct Digital Holdings and Paramount Global Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paramount Global Class 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 Paramount Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paramount Global Class has no effect on the direction of Direct Digital i.e., Direct Digital and Paramount Global go up and down completely randomly.

Pair Corralation between Direct Digital and Paramount Global

Given the investment horizon of 90 days Direct Digital Holdings is expected to generate 131.92 times more return on investment than Paramount Global. However, Direct Digital is 131.92 times more volatile than Paramount Global Class. It trades about 0.19 of its potential returns per unit of risk. Paramount Global Class is currently generating about -0.09 per unit of risk. If you would invest  59.00  in Direct Digital Holdings on October 20, 2024 and sell it today you would earn a total of  70.00  from holding Direct Digital Holdings or generate 118.64% return on investment over 90 days.

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

Direct Digital Holdings  vs.  Paramount Global Class

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.

Paramount Global Class

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Paramount Global Class has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Paramount Global is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Direct Digital and Paramount Global

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

The idea behind Direct Digital Holdings and Paramount Global Class 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.