Correlation Between DigitalOcean Holdings and Northrop Grumman

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

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

Diversification Opportunities for DigitalOcean Holdings and Northrop Grumman

0.56

Correlation Coefficient

DigitalOcean Holdings  Northrop Grumman

Very weak diversification

The 3 months correlation between DigitalOcean and Northrop is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding DigitalOcean Holdings and Northrop Grumman in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northrop Grumman 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 Northrop Grumman. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northrop Grumman has no effect on the direction of DigitalOcean Holdings i.e., DigitalOcean Holdings and Northrop Grumman go up and down completely randomly.

Pair Corralation between DigitalOcean Holdings and Northrop Grumman

Given the investment horizon of 90 days DigitalOcean Holdings is expected to generate 2.64 times more return on investment than Northrop Grumman. However, DigitalOcean Holdings is 2.64 times more volatile than Northrop Grumman. It trades about -0.06 of its potential returns per unit of risk. Northrop Grumman is currently generating about -0.15 per unit of risk. If you would invest  4,323  in DigitalOcean Holdings on September 20, 2024 and sell it today you would lose (547.00) from holding DigitalOcean Holdings or give up 12.65% of portfolio value over 90 days.

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

DigitalOcean Holdings  vs.  Northrop Grumman

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.

Northrop Grumman

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northrop Grumman has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with DigitalOcean Holdings and Northrop Grumman

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

The idea behind DigitalOcean Holdings and Northrop Grumman 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.