Correlation Between Digital World and KAT Exploration

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

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

Diversification Opportunities for Digital World and KAT Exploration

-0.28

Correlation Coefficient

Digital World  KAT Exploration

Very good diversification

The 3 months correlation between Digital and KAT is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Digital World Acquisition and KAT Exploration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KAT Exploration and Digital World 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 Digital World Acquisition are associated (or correlated) with KAT Exploration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KAT Exploration has no effect on the direction of Digital World i.e., Digital World and KAT Exploration go up and down completely randomly.

Pair Corralation between Digital World and KAT Exploration

If you would invest  0.03  in KAT Exploration on September 17, 2024 and sell it today you would lose (0.01) from holding KAT Exploration or give up 33.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	5.0%
Values	Daily Returns

Digital World Acquisition  vs.  KAT Exploration

Digital World Acquisition

Risk-Adjusted Performance

0 of 100

Very Weak

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

KAT Exploration

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in KAT Exploration are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, KAT Exploration showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Digital World and KAT Exploration

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

The idea behind Digital World Acquisition and KAT Exploration 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.