Correlation Between Digital World and Social Capital

Can any of the company-specific risk be diversified away by investing in both Digital World and Social Capital 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 Social Capital 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 Social Capital Hedosophia, you can compare the effects of market volatilities on Digital World and Social Capital 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 Social Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Digital World and Social Capital.

Diversification Opportunities for Digital World and Social Capital

0.0

Correlation Coefficient

Digital World  Social Capital

Pay attention - limited upside

The 3 months correlation between Digital and Social is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Digital World Acquisition and Social Capital Hedosophia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Social Capital Hedosophia 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 Social Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Social Capital Hedosophia has no effect on the direction of Digital World i.e., Digital World and Social Capital go up and down completely randomly.

Pair Corralation between Digital World and Social Capital

If you would invest  4,995  in Digital World Acquisition on January 25, 2024 and sell it today you would earn a total of  804.00  from holding Digital World Acquisition or generate 16.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Digital World Acquisition  vs.  Social Capital Hedosophia

Digital World Acquisition

Risk-Adjusted Performance

0 of 100

Good

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 rather weak basic indicators, Digital World exhibited solid returns over the last few months and may actually be approaching a breakup point.

Social Capital Hedosophia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Social Capital Hedosophia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Social Capital is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Digital World and Social Capital

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

The idea behind Digital World Acquisition and Social Capital Hedosophia 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.