Correlation Between Steven Madden and Digi International

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

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

Diversification Opportunities for Steven Madden and Digi International

-0.68

Correlation Coefficient

Steven Madden  Digi International

Excellent diversification

The 3 months correlation between Steven and Digi is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Steven Madden and Digi International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digi International and Steven Madden 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 Steven Madden are associated (or correlated) with Digi International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digi International has no effect on the direction of Steven Madden i.e., Steven Madden and Digi International go up and down completely randomly.

Pair Corralation between Steven Madden and Digi International

Given the investment horizon of 90 days Steven Madden is expected to generate 0.75 times more return on investment than Digi International. However, Steven Madden is 1.34 times less risky than Digi International. It trades about 0.02 of its potential returns per unit of risk. Digi International is currently generating about -0.04 per unit of risk. If you would invest  4,261  in Steven Madden on September 22, 2024 and sell it today you would earn a total of  22.00  from holding Steven Madden or generate 0.52% return on investment over 90 days.

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

Steven Madden  vs.  Digi International

Steven Madden

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Steven Madden has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Digi International

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Digi International are ranked lower than 8 (%) 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.

Pair Trading with Steven Madden and Digi International

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

The idea behind Steven Madden and Digi International 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.