Correlation Between CECO Environmental and Digi International

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

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

Diversification Opportunities for CECO Environmental and Digi International

0.55

Correlation Coefficient

CECO Environmental  Digi International

Very weak diversification

The 3 months correlation between CECO and Digi is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding CECO Environmental Corp and Digi International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digi International and CECO Environmental 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 CECO Environmental Corp 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 CECO Environmental i.e., CECO Environmental and Digi International go up and down completely randomly.

Pair Corralation between CECO Environmental and Digi International

Given the investment horizon of 90 days CECO Environmental Corp is expected to generate 1.12 times more return on investment than Digi International. However, CECO Environmental is 1.12 times more volatile than Digi International. It trades about 0.08 of its potential returns per unit of risk. Digi International is currently generating about 0.05 per unit of risk. If you would invest  1,873  in CECO Environmental Corp on October 10, 2024 and sell it today you would earn a total of  1,304  from holding CECO Environmental Corp or generate 69.62% return on investment over 90 days.

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

CECO Environmental Corp  vs.  Digi International

CECO Environmental Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CECO Environmental Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental indicators, CECO Environmental displayed solid returns over the last few months and may actually be approaching a breakup point.

Digi International

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Digi International are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong forward indicators, Digi International is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with CECO Environmental and Digi International

The main advantage of trading using opposite CECO Environmental and Digi International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CECO Environmental 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 CECO Environmental Corp 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.