Correlation Between Solo Brands and Dada Nexus

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

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

Diversification Opportunities for Solo Brands and Dada Nexus

-0.25

Correlation Coefficient

Solo Brands  Dada Nexus

Very good diversification

The 3 months correlation between Solo and Dada is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Solo Brands and Dada Nexus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dada Nexus and Solo Brands 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 Solo Brands are associated (or correlated) with Dada Nexus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dada Nexus has no effect on the direction of Solo Brands i.e., Solo Brands and Dada Nexus go up and down completely randomly.

Pair Corralation between Solo Brands and Dada Nexus

Considering the 90-day investment horizon Solo Brands is expected to under-perform the Dada Nexus. But the stock apears to be less risky and, when comparing its historical volatility, Solo Brands is 1.68 times less risky than Dada Nexus. The stock trades about -0.04 of its potential returns per unit of risk. The Dada Nexus is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  110.00  in Dada Nexus on September 4, 2024 and sell it today you would earn a total of  36.00  from holding Dada Nexus or generate 32.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Solo Brands  vs.  Dada Nexus

Solo Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Solo Brands has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Dada Nexus

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dada Nexus are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental indicators, Dada Nexus sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Solo Brands and Dada Nexus

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

The idea behind Solo Brands and Dada Nexus 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.