Correlation Between Pure Storage and Desktop Metal

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

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

Diversification Opportunities for Pure Storage and Desktop Metal

-0.09

Correlation Coefficient

Pure Storage  Desktop Metal

Good diversification

The 3 months correlation between Pure and Desktop is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Pure Storage and Desktop Metal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Desktop Metal and Pure 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 Pure Storage are associated (or correlated) with Desktop Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Desktop Metal has no effect on the direction of Pure Storage i.e., Pure Storage and Desktop Metal go up and down completely randomly.

Pair Corralation between Pure Storage and Desktop Metal

Given the investment horizon of 90 days Pure Storage is expected to under-perform the Desktop Metal. But the stock apears to be less risky and, when comparing its historical volatility, Pure Storage is 4.2 times less risky than Desktop Metal. The stock trades about -0.11 of its potential returns per unit of risk. The Desktop Metal is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  232.00  in Desktop Metal on December 28, 2024 and sell it today you would earn a total of  252.00  from holding Desktop Metal or generate 108.62% return on investment over 90 days.

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

Pure Storage  vs.  Desktop Metal

Pure Storage

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pure Storage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Desktop Metal

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Desktop Metal are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Desktop Metal displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pure Storage and Desktop Metal

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

The idea behind Pure Storage and Desktop Metal 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.