Can any of the company-specific risk be diversified away by investing in both Fair Isaac and DoubleVerify 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 Fair Isaac and DoubleVerify Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fair Isaac and DoubleVerify Holdings, you can compare the effects of market volatilities on Fair Isaac and DoubleVerify 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 Fair Isaac with a short position of DoubleVerify Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fair Isaac and DoubleVerify Holdings.
Diversification Opportunities for Fair Isaac and DoubleVerify Holdings
The 3 months correlation between Fair and DoubleVerify is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Fair Isaac and DoubleVerify Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DoubleVerify Holdings and Fair Isaac 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 Fair Isaac are associated (or correlated) with DoubleVerify Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DoubleVerify Holdings has no effect on the direction of Fair Isaac i.e., Fair Isaac and DoubleVerify Holdings go up and down completely randomly.
Pair Corralation between Fair Isaac and DoubleVerify Holdings
Given the investment horizon of 90 days Fair Isaac is expected to generate 0.8 times more return on investment than DoubleVerify Holdings. However, Fair Isaac is 1.25 times less risky than DoubleVerify Holdings. It trades about 0.09 of its potential returns per unit of risk. DoubleVerify Holdings is currently generating about 0.02 per unit of risk. If you would invest 40,699 in Fair Isaac on August 31, 2023 and sell it today you would earn a total of 66,811 from holding Fair Isaac or generate 164.16% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Fair Isaac are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile fundamental indicators, Fair Isaac displayed solid returns over the last few months and may actually be approaching a breakup point.
Over the last 90 days DoubleVerify Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, DoubleVerify Holdings is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.
Fair Isaac and DoubleVerify Holdings Volatility Contrast
Predicted Return Density
Pair Trading with Fair Isaac and DoubleVerify Holdings
The main advantage of trading using opposite Fair Isaac and DoubleVerify Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fair Isaac position performs unexpectedly, DoubleVerify 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 DoubleVerify Holdings will offset losses from the drop in DoubleVerify Holdings' long position.
The idea behind Fair Isaac and DoubleVerify 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.
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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