Correlation Between DigitalOcean Holdings and Cloudflare

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

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

Diversification Opportunities for DigitalOcean Holdings and Cloudflare

-0.42

Correlation Coefficient

DigitalOcean Holdings  Cloudflare

Very good diversification

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

Pair Corralation between DigitalOcean Holdings and Cloudflare

Given the investment horizon of 90 days DigitalOcean Holdings is expected to generate 1.94 times less return on investment than Cloudflare. But when comparing it to its historical volatility, DigitalOcean Holdings is 1.0 times less risky than Cloudflare. It trades about 0.04 of its potential returns per unit of risk. Cloudflare is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  4,302  in Cloudflare on September 21, 2024 and sell it today you would earn a total of  7,000  from holding Cloudflare or generate 162.72% return on investment over 90 days.

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

DigitalOcean Holdings  vs.  Cloudflare

DigitalOcean Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DigitalOcean Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Cloudflare

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cloudflare are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, Cloudflare unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DigitalOcean Holdings and Cloudflare

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

The idea behind DigitalOcean Holdings and Cloudflare 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.