Correlation Between Cracker Barrel and Digi International

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

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

Diversification Opportunities for Cracker Barrel and Digi International

0.76

Correlation Coefficient

Cracker Barrel  Digi International

Poor diversification

The 3 months correlation between Cracker and Digi is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Cracker Barrel Old and Digi International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digi International and Cracker Barrel 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 Cracker Barrel Old 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 Cracker Barrel i.e., Cracker Barrel and Digi International go up and down completely randomly.

Pair Corralation between Cracker Barrel and Digi International

Given the investment horizon of 90 days Cracker Barrel Old is expected to generate 1.58 times more return on investment than Digi International. However, Cracker Barrel is 1.58 times more volatile than Digi International. It trades about 0.16 of its potential returns per unit of risk. Digi International is currently generating about -0.16 per unit of risk. If you would invest  4,841  in Cracker Barrel Old on September 23, 2024 and sell it today you would earn a total of  499.00  from holding Cracker Barrel Old or generate 10.31% return on investment over 90 days.

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

Cracker Barrel Old  vs.  Digi International

Cracker Barrel Old

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cracker Barrel Old are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating basic indicators, Cracker Barrel disclosed solid returns over the last few months and may actually be approaching a breakup point.

Digi International

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Digi International are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating forward indicators, Digi International demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cracker Barrel and Digi International

The main advantage of trading using opposite Cracker Barrel and Digi International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cracker Barrel 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 Cracker Barrel Old 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.