Correlation Between Digital Power and IL Science

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

Diversification Opportunities for Digital Power and IL Science

-0.55

Correlation Coefficient

Digital Power  IL Science

Excellent diversification

The 3 months correlation between Digital and 307180 is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Digital Power Communications and IL Science Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IL Science 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 IL Science. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IL Science has no effect on the direction of Digital Power i.e., Digital Power and IL Science go up and down completely randomly.

Pair Corralation between Digital Power and IL Science

Assuming the 90 days trading horizon Digital Power Communications is expected to under-perform the IL Science. But the stock apears to be less risky and, when comparing its historical volatility, Digital Power Communications is 1.41 times less risky than IL Science. The stock trades about -0.05 of its potential returns per unit of risk. The IL Science Co is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  261,000  in IL Science Co on December 2, 2024 and sell it today you would earn a total of  22,000  from holding IL Science Co or generate 8.43% return on investment over 90 days.

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

Digital Power Communications  vs.  IL Science Co

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 somewhat strong basic indicators, Digital Power is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

IL Science

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in IL Science Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, IL Science may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Digital Power and IL Science

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

The idea behind Digital Power Communications and IL Science Co 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.