Correlation Between NH Investment and Digital Power

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

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

Diversification Opportunities for NH Investment and Digital Power

0.55

Correlation Coefficient

NH Investment  Digital Power

Very weak diversification

The 3 months correlation between 005940 and Digital is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding NH Investment Securities and Digital Power Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital Power Commun and NH Investment 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 NH Investment Securities are associated (or correlated) with Digital Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital Power Commun has no effect on the direction of NH Investment i.e., NH Investment and Digital Power go up and down completely randomly.

Pair Corralation between NH Investment and Digital Power

Assuming the 90 days trading horizon NH Investment Securities is expected to under-perform the Digital Power. But the stock apears to be less risky and, when comparing its historical volatility, NH Investment Securities is 1.06 times less risky than Digital Power. The stock trades about -0.07 of its potential returns per unit of risk. The Digital Power Communications is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  838,813  in Digital Power Communications on October 13, 2024 and sell it today you would earn a total of  15,187  from holding Digital Power Communications or generate 1.81% return on investment over 90 days.

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

NH Investment Securities  vs.  Digital Power Communications

NH Investment Securities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NH Investment Securities has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, NH Investment is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Digital Power Commun

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Digital Power Communications are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Digital Power may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with NH Investment and Digital Power

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

The idea behind NH Investment Securities and Digital Power Communications 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.