Correlation Between Digi International and British Amer

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

By analyzing existing cross correlation between Digi International and British American Tobacco, you can compare the effects of market volatilities on Digi International and British Amer 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 British Amer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Digi International and British Amer.

Diversification Opportunities for Digi International and British Amer

0.53

Correlation Coefficient

Digi International  British Amer

Very weak diversification

The 3 months correlation between Digi and British is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Digi International and British American Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on British American Tobacco 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 British Amer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of British American Tobacco has no effect on the direction of Digi International i.e., Digi International and British Amer go up and down completely randomly.

Pair Corralation between Digi International and British Amer

Given the investment horizon of 90 days Digi International is expected to under-perform the British Amer. In addition to that, Digi International is 3.47 times more volatile than British American Tobacco. It trades about -0.39 of its total potential returns per unit of risk. British American Tobacco is currently generating about -0.06 per unit of volatility. If you would invest  3,698  in British American Tobacco on October 12, 2024 and sell it today you would lose (24.00) from holding British American Tobacco or give up 0.65% of portfolio value over 90 days.

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

Digi International  vs.  British American Tobacco

Digi International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Digi International has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

British American Tobacco

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, British Amer is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Digi International and British Amer

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

The idea behind Digi International and British American Tobacco 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.