Correlation Between Leidos Holdings and Applied Digital

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

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

Diversification Opportunities for Leidos Holdings and Applied Digital

-0.42

Correlation Coefficient

Leidos Holdings  Applied Digital

Very good diversification

The 3 months correlation between Leidos and Applied is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Leidos Holdings and Applied Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Digital and Leidos Holdings 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 Leidos Holdings are associated (or correlated) with Applied Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Digital has no effect on the direction of Leidos Holdings i.e., Leidos Holdings and Applied Digital go up and down completely randomly.

Pair Corralation between Leidos Holdings and Applied Digital

Given the investment horizon of 90 days Leidos Holdings is expected to under-perform the Applied Digital. But the stock apears to be less risky and, when comparing its historical volatility, Leidos Holdings is 2.69 times less risky than Applied Digital. The stock trades about -0.22 of its potential returns per unit of risk. The Applied Digital is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  637.00  in Applied Digital on October 6, 2024 and sell it today you would earn a total of  274.00  from holding Applied Digital or generate 43.01% return on investment over 90 days.

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

Leidos Holdings  vs.  Applied Digital

Leidos Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Leidos Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Applied Digital

Risk-Adjusted Performance

7 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Digital are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting essential indicators, Applied Digital exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Leidos Holdings and Applied Digital

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

The idea behind Leidos Holdings and Applied Digital 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.