Correlation Between Digi International and Silicom

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

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

Diversification Opportunities for Digi International and Silicom

0.48

Correlation Coefficient

Digi International  Silicom

Very weak diversification

The 3 months correlation between Digi and Silicom is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Digi International and Silicom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Silicom 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 Silicom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Silicom has no effect on the direction of Digi International i.e., Digi International and Silicom go up and down completely randomly.

Pair Corralation between Digi International and Silicom

Given the investment horizon of 90 days Digi International is expected to under-perform the Silicom. In addition to that, Digi International is 1.08 times more volatile than Silicom. It trades about -0.02 of its total potential returns per unit of risk. Silicom is currently generating about 0.0 per unit of volatility. If you would invest  1,543  in Silicom on December 28, 2024 and sell it today you would lose (44.00) from holding Silicom or give up 2.85% 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.  Silicom

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.

Silicom

Risk-Adjusted Performance

Very Weak

Over the last 90 days Silicom has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Silicom is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Digi International and Silicom

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

The idea behind Digi International and Silicom 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.