Correlation Between Radcom and Datadog

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

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

Diversification Opportunities for Radcom and Datadog

0.86

Correlation Coefficient

Radcom  Datadog

Very poor diversification

The 3 months correlation between Radcom and Datadog is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Radcom and Datadog in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Datadog and Radcom 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 Radcom are associated (or correlated) with Datadog. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Datadog has no effect on the direction of Radcom i.e., Radcom and Datadog go up and down completely randomly.

Pair Corralation between Radcom and Datadog

Given the investment horizon of 90 days Radcom is expected to generate 2.3 times less return on investment than Datadog. In addition to that, Radcom is 1.34 times more volatile than Datadog. It trades about 0.05 of its total potential returns per unit of risk. Datadog is currently generating about 0.16 per unit of volatility. If you would invest  11,476  in Datadog on September 20, 2024 and sell it today you would earn a total of  3,218  from holding Datadog or generate 28.04% return on investment over 90 days.

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

Radcom  vs.  Datadog

Radcom

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Radcom are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Radcom may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Datadog

Risk-Adjusted Performance

12 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Datadog are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Datadog reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Radcom and Datadog

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

The idea behind Radcom and Datadog 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.