Correlation Between Digital Multimedia and BHI

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

By analyzing existing cross correlation between Digital Multimedia Technology and BHI Co, you can compare the effects of market volatilities on Digital Multimedia and BHI 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 Multimedia with a short position of BHI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Digital Multimedia and BHI.

Diversification Opportunities for Digital Multimedia and BHI

0.06

Correlation Coefficient

Digital Multimedia  BHI

Significant diversification

The 3 months correlation between Digital and BHI is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Digital Multimedia Technology and BHI Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BHI Co and Digital Multimedia 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 Multimedia Technology are associated (or correlated) with BHI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BHI Co has no effect on the direction of Digital Multimedia i.e., Digital Multimedia and BHI go up and down completely randomly.

Pair Corralation between Digital Multimedia and BHI

Assuming the 90 days trading horizon Digital Multimedia Technology is expected to under-perform the BHI. But the stock apears to be less risky and, when comparing its historical volatility, Digital Multimedia Technology is 1.29 times less risky than BHI. The stock trades about -0.06 of its potential returns per unit of risk. The BHI Co is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  640,000  in BHI Co on October 26, 2024 and sell it today you would earn a total of  1,710,000  from holding BHI Co or generate 267.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.22%
Values	Daily Returns

Digital Multimedia Technology  vs.  BHI Co

Digital Multimedia

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Digital Multimedia Technology are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Digital Multimedia may actually be approaching a critical reversion point that can send shares even higher in February 2025.

BHI Co

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BHI Co are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, BHI sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Digital Multimedia and BHI

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

The idea behind Digital Multimedia Technology and BHI 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.

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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 Global Correlations module to find global opportunities by holding instruments from different markets.