Correlation Between Stepstone and Digi International

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

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

Diversification Opportunities for Stepstone and Digi International

0.63

Correlation Coefficient

Stepstone  Digi International

Poor diversification

The 3 months correlation between Stepstone and Digi is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Stepstone Group and Digi International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digi International and Stepstone 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 Stepstone Group 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 Stepstone i.e., Stepstone and Digi International go up and down completely randomly.

Pair Corralation between Stepstone and Digi International

Given the investment horizon of 90 days Stepstone Group is expected to generate 1.35 times more return on investment than Digi International. However, Stepstone is 1.35 times more volatile than Digi International. It trades about 0.04 of its potential returns per unit of risk. Digi International is currently generating about -0.3 per unit of risk. If you would invest  5,982  in Stepstone Group on October 10, 2024 and sell it today you would earn a total of  87.00  from holding Stepstone Group or generate 1.45% return on investment over 90 days.

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

Stepstone Group  vs.  Digi International

Stepstone Group

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Stepstone Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, Stepstone is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Digi International

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Digi International are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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 Stepstone and Digi International

The main advantage of trading using opposite Stepstone and Digi International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepstone 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 Stepstone Group 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 Transaction History module to view history of all your transactions and understand their impact on performance.