Correlation Between Silicom and Digi International

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

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

Diversification Opportunities for Silicom and Digi International

0.48

Correlation Coefficient

Silicom  Digi International

Very weak diversification

The 3 months correlation between Silicom and Digi is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Silicom and Digi International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digi International and Silicom 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 Silicom 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 Silicom i.e., Silicom and Digi International go up and down completely randomly.

Pair Corralation between Silicom and Digi International

Given the investment horizon of 90 days Silicom is expected to generate 0.92 times more return on investment than Digi International. However, Silicom is 1.08 times less risky than Digi International. It trades about 0.0 of its potential returns per unit of risk. Digi International is currently generating about -0.02 per unit of risk. 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

Silicom  vs.  Digi International

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 recent stock price tumult, may contribute to shorter-term losses for the shareholders.

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.

Pair Trading with Silicom and Digi International

The main advantage of trading using opposite Silicom and Digi International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Silicom 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 Silicom 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.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..