Correlation Between Digital Brands and Carvana

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

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

Diversification Opportunities for Digital Brands and Carvana

-0.72

Correlation Coefficient

Digital Brands  Carvana

Pay attention - limited upside

The 3 months correlation between Digital and Carvana is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Digital Brands Group and Carvana Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carvana and Digital Brands 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 Brands Group are associated (or correlated) with Carvana. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carvana has no effect on the direction of Digital Brands i.e., Digital Brands and Carvana go up and down completely randomly.

Pair Corralation between Digital Brands and Carvana

Given the investment horizon of 90 days Digital Brands Group is expected to under-perform the Carvana. But the stock apears to be less risky and, when comparing its historical volatility, Digital Brands Group is 1.37 times less risky than Carvana. The stock trades about -0.31 of its potential returns per unit of risk. The Carvana Co is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  7,535  in Carvana Co on February 24, 2024 and sell it today you would earn a total of  3,456  from holding Carvana Co or generate 45.87% return on investment over 90 days.

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

Digital Brands Group  vs.  Carvana Co

Digital Brands Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Digital Brands Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in June 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Carvana

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Carvana Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Carvana sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Digital Brands and Carvana

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

The idea behind Digital Brands Group and Carvana Co 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 Global Correlations module to find global opportunities by holding instruments from different markets.