Correlation Between Digi International and CenterPoint Energy

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

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

Diversification Opportunities for Digi International and CenterPoint Energy

0.85

Correlation Coefficient

Digi International  CenterPoint Energy

Very poor diversification

The 3 months correlation between Digi and CenterPoint is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Digi International and CenterPoint Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CenterPoint Energy 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 CenterPoint Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CenterPoint Energy has no effect on the direction of Digi International i.e., Digi International and CenterPoint Energy go up and down completely randomly.

Pair Corralation between Digi International and CenterPoint Energy

Given the investment horizon of 90 days Digi International is expected to generate 1.87 times more return on investment than CenterPoint Energy. However, Digi International is 1.87 times more volatile than CenterPoint Energy. It trades about 0.21 of its potential returns per unit of risk. CenterPoint Energy is currently generating about 0.21 per unit of risk. If you would invest  3,100  in Digi International on September 18, 2024 and sell it today you would earn a total of  221.00  from holding Digi International or generate 7.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.24%
Values	Daily Returns

Digi International  vs.  CenterPoint Energy

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 weak forward indicators, Digi International demonstrated solid returns over the last few months and may actually be approaching a breakup point.

CenterPoint Energy

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CenterPoint Energy are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, CenterPoint Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Digi International and CenterPoint Energy

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

The idea behind Digi International and CenterPoint Energy 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 Stocks Directory module to find actively traded stocks across global markets.