Correlation Between Duolingo and Shotspotter

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

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

Diversification Opportunities for Duolingo and Shotspotter

-0.55

Correlation Coefficient

Duolingo  Shotspotter

Excellent diversification

The 3 months correlation between Duolingo and Shotspotter is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Duolingo and Shotspotter in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shotspotter and Duolingo 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 Duolingo are associated (or correlated) with Shotspotter. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shotspotter has no effect on the direction of Duolingo i.e., Duolingo and Shotspotter go up and down completely randomly.

Pair Corralation between Duolingo and Shotspotter

Given the investment horizon of 90 days Duolingo is expected to generate 0.61 times more return on investment than Shotspotter. However, Duolingo is 1.65 times less risky than Shotspotter. It trades about 0.38 of its potential returns per unit of risk. Shotspotter is currently generating about 0.0 per unit of risk. If you would invest  20,636  in Duolingo on September 1, 2024 and sell it today you would earn a total of  14,191  from holding Duolingo or generate 68.77% return on investment over 90 days.

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

Duolingo  vs.  Shotspotter

Duolingo

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Duolingo are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, Duolingo disclosed solid returns over the last few months and may actually be approaching a breakup point.

Shotspotter

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shotspotter has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Shotspotter is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Duolingo and Shotspotter

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

The idea behind Duolingo and Shotspotter 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.