Correlation Between Black Hills and Digi International

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

By analyzing existing cross correlation between Black Hills and Digi International, you can compare the effects of market volatilities on Black Hills and Digi International 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 Black Hills with a short position of Digi International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Black Hills and Digi International.

Diversification Opportunities for Black Hills and Digi International

0.48

Correlation Coefficient

Black Hills  Digi International

Very weak diversification

The 3 months correlation between Black and Digi is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Black Hills and Digi International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digi International and Black Hills 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 Black Hills are associated (or correlated) with Digi International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digi International has no effect on the direction of Black Hills i.e., Black Hills and Digi International go up and down completely randomly.

Pair Corralation between Black Hills and Digi International

Considering the 90-day investment horizon Black Hills is expected to generate 0.21 times more return on investment than Digi International. However, Black Hills is 4.83 times less risky than Digi International. It trades about 0.14 of its potential returns per unit of risk. Digi International is currently generating about -0.02 per unit of risk. If you would invest  5,835  in Black Hills on December 5, 2024 and sell it today you would earn a total of  155.00  from holding Black Hills or generate 2.66% return on investment over 90 days.

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

Black Hills  vs.  Digi International

Black Hills

Risk-Adjusted Performance

Very Weak

Over the last 90 days Black Hills has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward-looking signals, Black Hills is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Digi International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Digi International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's forward indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Black Hills and Digi International

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

The idea behind Black Hills and Digi International 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.