Correlation Between Data Storage and Digital Brands

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

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

Diversification Opportunities for Data Storage and Digital Brands

-0.12

Correlation Coefficient

Data Storage  Digital Brands

Good diversification

The 3 months correlation between Data and Digital is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Data Storage Corp and Digital Brands Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital Brands Group and Data Storage 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 Data Storage Corp are associated (or correlated) with Digital Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital Brands Group has no effect on the direction of Data Storage i.e., Data Storage and Digital Brands go up and down completely randomly.

Pair Corralation between Data Storage and Digital Brands

Given the investment horizon of 90 days Data Storage is expected to generate 2.94 times less return on investment than Digital Brands. But when comparing it to its historical volatility, Data Storage Corp is 3.26 times less risky than Digital Brands. It trades about 0.11 of its potential returns per unit of risk. Digital Brands Group is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,222  in Digital Brands Group on August 30, 2024 and sell it today you would lose (1.00) from holding Digital Brands Group or give up 0.08% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	86.36%
Values	Daily Returns

Data Storage Corp  vs.  Digital Brands Group

Data Storage Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Data Storage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Data Storage is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Digital Brands Group

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Digital Brands Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent forward indicators, Digital Brands showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Data Storage and Digital Brands

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

The idea behind Data Storage Corp and Digital Brands Group 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.