Correlation Between Digital World and Jaws Mustang

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

Diversification Opportunities for Digital World and Jaws Mustang

0.42

Correlation Coefficient

Digital World  Jaws Mustang

Very weak diversification

The 3 months correlation between Digital and Jaws is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Digital World Acquisition and Jaws Mustang Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jaws Mustang Acquisition 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 Jaws Mustang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jaws Mustang Acquisition has no effect on the direction of Digital World i.e., Digital World and Jaws Mustang go up and down completely randomly.

Pair Corralation between Digital World and Jaws Mustang

Given the investment horizon of 90 days Digital World Acquisition is expected to generate 37.51 times more return on investment than Jaws Mustang. However, Digital World is 37.51 times more volatile than Jaws Mustang Acquisition. It trades about 0.13 of its potential returns per unit of risk. Jaws Mustang Acquisition is currently generating about 0.06 per unit of risk. If you would invest  4,723  in Digital World Acquisition on January 25, 2024 and sell it today you would earn a total of  1,076  from holding Digital World Acquisition or generate 22.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	54.76%
Values	Daily Returns

Digital World Acquisition  vs.  Jaws Mustang Acquisition

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.

Jaws Mustang Acquisition

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Jaws Mustang Acquisition are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Jaws Mustang is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Digital World and Jaws Mustang

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

The idea behind Digital World Acquisition and Jaws Mustang Acquisition 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 Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.