Correlation Between Digi International and ADVA Optical

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

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

Diversification Opportunities for Digi International and ADVA Optical

0.65

Correlation Coefficient

Digi International  ADVA Optical

Poor diversification

The 3 months correlation between Digi and ADVA is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Digi International and ADVA Optical Networking in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADVA Optical Networking and Digi International 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 Digi International are associated (or correlated) with ADVA Optical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ADVA Optical Networking has no effect on the direction of Digi International i.e., Digi International and ADVA Optical go up and down completely randomly.

Pair Corralation between Digi International and ADVA Optical

If you would invest  3,262  in Digi International on September 13, 2024 and sell it today you would earn a total of  76.50  from holding Digi International or generate 2.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Digi International  vs.  ADVA Optical Networking

Digi International

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Digi International are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile forward indicators, Digi International demonstrated solid returns over the last few months and may actually be approaching a breakup point.

ADVA Optical Networking

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ADVA Optical Networking are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, ADVA Optical is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Digi International and ADVA Optical

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

The idea behind Digi International and ADVA Optical Networking 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.