Correlation Between Digi International and Westinghouse Air

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

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

Diversification Opportunities for Digi International and Westinghouse Air

0.94

Correlation Coefficient

Digi International  Westinghouse Air

Almost no diversification

The 3 months correlation between Digi and Westinghouse is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Digi International and Westinghouse Air Brake in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westinghouse Air Brake 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 Westinghouse Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westinghouse Air Brake has no effect on the direction of Digi International i.e., Digi International and Westinghouse Air go up and down completely randomly.

Pair Corralation between Digi International and Westinghouse Air

Given the investment horizon of 90 days Digi International is expected to generate 1.81 times more return on investment than Westinghouse Air. However, Digi International is 1.81 times more volatile than Westinghouse Air Brake. It trades about 0.06 of its potential returns per unit of risk. Westinghouse Air Brake is currently generating about 0.0 per unit of risk. If you would invest  3,067  in Digi International on September 21, 2024 and sell it today you would earn a total of  158.00  from holding Digi International or generate 5.15% 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.  Westinghouse Air Brake

Digi International

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Digi International are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile forward indicators, Digi International demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Westinghouse Air Brake

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Westinghouse Air Brake are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Westinghouse Air is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Digi International and Westinghouse Air

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

The idea behind Digi International and Westinghouse Air Brake 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.