Correlation Between Digi International and HE Equipment

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

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

Diversification Opportunities for Digi International and HE Equipment

0.92

Correlation Coefficient

Digi International  HE Equipment

Almost no diversification

The 3 months correlation between Digi and HEES is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Digi International and HE Equipment Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HE Equipment Services 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 HE Equipment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HE Equipment Services has no effect on the direction of Digi International i.e., Digi International and HE Equipment go up and down completely randomly.

Pair Corralation between Digi International and HE Equipment

Given the investment horizon of 90 days Digi International is expected to generate 0.81 times more return on investment than HE Equipment. However, Digi International is 1.24 times less risky than HE Equipment. It trades about 0.19 of its potential returns per unit of risk. HE Equipment Services is currently generating about 0.12 per unit of risk. If you would invest  2,663  in Digi International on September 18, 2024 and sell it today you would earn a total of  708.00  from holding Digi International or generate 26.59% return on investment over 90 days.

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

Digi International  vs.  HE Equipment Services

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.

HE Equipment Services

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HE Equipment Services are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, HE Equipment unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Digi International and HE Equipment

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

The idea behind Digi International and HE Equipment Services 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..