Correlation Between Digital Power and SCI Information

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

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

Diversification Opportunities for Digital Power and SCI Information

0.57

Correlation Coefficient

Digital Power  SCI Information

Very weak diversification

The 3 months correlation between Digital and SCI is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Digital Power Communications and SCI Information Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SCI Information Service and Digital Power 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 Power Communications are associated (or correlated) with SCI Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SCI Information Service has no effect on the direction of Digital Power i.e., Digital Power and SCI Information go up and down completely randomly.

Pair Corralation between Digital Power and SCI Information

Assuming the 90 days trading horizon Digital Power Communications is expected to under-perform the SCI Information. In addition to that, Digital Power is 1.14 times more volatile than SCI Information Service. It trades about -0.09 of its total potential returns per unit of risk. SCI Information Service is currently generating about -0.07 per unit of volatility. If you would invest  225,026  in SCI Information Service on December 24, 2024 and sell it today you would lose (15,026) from holding SCI Information Service or give up 6.68% of portfolio value over 90 days.

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

Digital Power Communications  vs.  SCI Information Service

Digital Power Commun

Risk-Adjusted Performance

Very Weak

Over the last 90 days Digital Power Communications has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

SCI Information Service

Risk-Adjusted Performance

Very Weak

Over the last 90 days SCI Information Service has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Digital Power and SCI Information

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

The idea behind Digital Power Communications and SCI Information Service 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.