Correlation Between Science Applications and Applied Digital

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

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

Diversification Opportunities for Science Applications and Applied Digital

-0.55

Correlation Coefficient

Science Applications  Applied Digital

Excellent diversification

The 3 months correlation between Science and Applied is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Science Applications Internati and Applied Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Digital and Science Applications 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 Science Applications International 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 Science Applications i.e., Science Applications and Applied Digital go up and down completely randomly.

Pair Corralation between Science Applications and Applied Digital

Given the investment horizon of 90 days Science Applications International is expected to under-perform the Applied Digital. But the stock apears to be less risky and, when comparing its historical volatility, Science Applications International is 2.64 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

Science Applications Internati  vs.  Applied Digital

Science Applications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Science Applications International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's forward indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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 Science Applications and Applied Digital

The main advantage of trading using opposite Science Applications and Applied Digital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Science Applications 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 Science Applications International 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.