Correlation Between Green Cross and Digital Power

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

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

Diversification Opportunities for Green Cross and Digital Power

0.71

Correlation Coefficient

Green Cross  Digital Power

Poor diversification

The 3 months correlation between Green and Digital is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Green Cross Medical 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 Green Cross 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 Green Cross Medical 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 Green Cross i.e., Green Cross and Digital Power go up and down completely randomly.

Pair Corralation between Green Cross and Digital Power

Assuming the 90 days trading horizon Green Cross Medical is expected to under-perform the Digital Power. But the stock apears to be less risky and, when comparing its historical volatility, Green Cross Medical is 1.11 times less risky than Digital Power. The stock trades about -0.34 of its potential returns per unit of risk. The Digital Power Communications is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  809,000  in Digital Power Communications on September 3, 2024 and sell it today you would earn a total of  19,000  from holding Digital Power Communications or generate 2.35% return on investment over 90 days.

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

Green Cross Medical  vs.  Digital Power Communications

Green Cross Medical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Green Cross Medical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Digital Power Commun

Risk-Adjusted Performance

0 of 100

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.

Pair Trading with Green Cross and Digital Power

The main advantage of trading using opposite Green Cross and Digital Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Green Cross 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 Green Cross Medical 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.

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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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.