Correlation Between Rapid7 and DigitalOcean Holdings

Can any of the company-specific risk be diversified away by investing in both Rapid7 and DigitalOcean Holdings 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 Rapid7 and DigitalOcean Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Rapid7 Inc and DigitalOcean Holdings, you can compare the effects of market volatilities on Rapid7 and DigitalOcean Holdings 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 Rapid7 with a short position of DigitalOcean Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rapid7 and DigitalOcean Holdings.

Diversification Opportunities for Rapid7 and DigitalOcean Holdings

0.04

Correlation Coefficient

Rapid7  DigitalOcean Holdings

Significant diversification

The 3 months correlation between Rapid7 and DigitalOcean is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Rapid7 Inc and DigitalOcean Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DigitalOcean Holdings and Rapid7 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 Rapid7 Inc are associated (or correlated) with DigitalOcean Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DigitalOcean Holdings has no effect on the direction of Rapid7 i.e., Rapid7 and DigitalOcean Holdings go up and down completely randomly.

Pair Corralation between Rapid7 and DigitalOcean Holdings

Considering the 90-day investment horizon Rapid7 Inc is expected to generate 0.69 times more return on investment than DigitalOcean Holdings. However, Rapid7 Inc is 1.45 times less risky than DigitalOcean Holdings. It trades about 0.09 of its potential returns per unit of risk. DigitalOcean Holdings is currently generating about 0.02 per unit of risk. If you would invest  3,781  in Rapid7 Inc on August 30, 2024 and sell it today you would earn a total of  472.00  from holding Rapid7 Inc or generate 12.48% return on investment over 90 days.

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

Rapid7 Inc  vs.  DigitalOcean Holdings

Rapid7 Inc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rapid7 Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Rapid7 exhibited solid returns over the last few months and may actually be approaching a breakup point.

DigitalOcean Holdings

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in DigitalOcean Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, DigitalOcean Holdings is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Rapid7 and DigitalOcean Holdings

The main advantage of trading using opposite Rapid7 and DigitalOcean Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rapid7 position performs unexpectedly, DigitalOcean Holdings 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 DigitalOcean Holdings will offset losses from the drop in DigitalOcean Holdings' long position.

The idea behind Rapid7 Inc and DigitalOcean Holdings 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.