Correlation Between Digi International and Motorola Solutions

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

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

Diversification Opportunities for Digi International and Motorola Solutions

0.36

Correlation Coefficient

Digi International  Motorola Solutions

Weak diversification

The 3 months correlation between Digi and Motorola is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Digi International and Motorola Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Motorola Solutions 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 Motorola Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Motorola Solutions has no effect on the direction of Digi International i.e., Digi International and Motorola Solutions go up and down completely randomly.

Pair Corralation between Digi International and Motorola Solutions

Given the investment horizon of 90 days Digi International is expected to generate 2.14 times more return on investment than Motorola Solutions. However, Digi International is 2.14 times more volatile than Motorola Solutions. It trades about 0.0 of its potential returns per unit of risk. Motorola Solutions is currently generating about -0.07 per unit of risk. If you would invest  3,022  in Digi International on December 28, 2024 and sell it today you would lose (105.00) from holding Digi International or give up 3.47% of portfolio value over 90 days.

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

Digi International  vs.  Motorola Solutions

Digi International

Risk-Adjusted Performance

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.

Motorola Solutions

Risk-Adjusted Performance

Very Weak

Over the last 90 days Motorola Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Digi International and Motorola Solutions

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

The idea behind Digi International and Motorola Solutions 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.