Correlation Between Gamma Communications and DG Innovate

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

By analyzing existing cross correlation between Gamma Communications PLC and DG Innovate PLC, you can compare the effects of market volatilities on Gamma Communications and DG Innovate 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 Gamma Communications with a short position of DG Innovate. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gamma Communications and DG Innovate.

Diversification Opportunities for Gamma Communications and DG Innovate

0.09

Correlation Coefficient

Gamma Communications  DG Innovate

Significant diversification

The 3 months correlation between Gamma and DGI is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Gamma Communications PLC and DG Innovate PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DG Innovate PLC and Gamma Communications 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 Gamma Communications PLC are associated (or correlated) with DG Innovate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DG Innovate PLC has no effect on the direction of Gamma Communications i.e., Gamma Communications and DG Innovate go up and down completely randomly.

Pair Corralation between Gamma Communications and DG Innovate

Assuming the 90 days trading horizon Gamma Communications PLC is expected to generate 0.1 times more return on investment than DG Innovate. However, Gamma Communications PLC is 9.72 times less risky than DG Innovate. It trades about -0.11 of its potential returns per unit of risk. DG Innovate PLC is currently generating about -0.08 per unit of risk. If you would invest  165,400  in Gamma Communications PLC on October 8, 2024 and sell it today you would lose (13,400) from holding Gamma Communications PLC or give up 8.1% of portfolio value over 90 days.

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

Gamma Communications PLC  vs.  DG Innovate PLC

Gamma Communications PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gamma Communications PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

DG Innovate PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DG Innovate PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Gamma Communications and DG Innovate

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

The idea behind Gamma Communications PLC and DG Innovate PLC 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..