Correlation Between Digital World and Bakkt Holdings

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

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

Diversification Opportunities for Digital World and Bakkt Holdings

0.64

Correlation Coefficient

Digital World  Bakkt Holdings

Poor diversification

The 3 months correlation between Digital and Bakkt is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Digital World Acquisition and Bakkt Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bakkt Holdings and Digital World 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 Digital World Acquisition are associated (or correlated) with Bakkt Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bakkt Holdings has no effect on the direction of Digital World i.e., Digital World and Bakkt Holdings go up and down completely randomly.

Pair Corralation between Digital World and Bakkt Holdings

Assuming the 90 days horizon Digital World Acquisition is expected to generate 0.92 times more return on investment than Bakkt Holdings. However, Digital World Acquisition is 1.09 times less risky than Bakkt Holdings. It trades about 0.05 of its potential returns per unit of risk. Bakkt Holdings is currently generating about 0.04 per unit of risk. If you would invest  440.00  in Digital World Acquisition on September 5, 2024 and sell it today you would earn a total of  60.00  from holding Digital World Acquisition or generate 13.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	30.51%
Values	Daily Returns

Digital World Acquisition  vs.  Bakkt Holdings

Digital World Acquisition

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Digital World Acquisition has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, Digital World is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Bakkt Holdings

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bakkt Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak forward-looking signals, Bakkt Holdings unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Digital World and Bakkt Holdings

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

The idea behind Digital World Acquisition and Bakkt 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..