Correlation Between ECSTELECOM and Digital Power

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

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

Diversification Opportunities for ECSTELECOM and Digital Power

0.37

Correlation Coefficient

ECSTELECOM  Digital Power

Weak diversification

The 3 months correlation between ECSTELECOM and Digital is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding ECSTELECOM Co and Digital Power Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital Power Commun and ECSTELECOM 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 ECSTELECOM Co are associated (or correlated) with Digital Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital Power Commun has no effect on the direction of ECSTELECOM i.e., ECSTELECOM and Digital Power go up and down completely randomly.

Pair Corralation between ECSTELECOM and Digital Power

Assuming the 90 days trading horizon ECSTELECOM Co is expected to generate 0.62 times more return on investment than Digital Power. However, ECSTELECOM Co is 1.61 times less risky than Digital Power. It trades about -0.03 of its potential returns per unit of risk. Digital Power Communications is currently generating about -0.03 per unit of risk. If you would invest  297,500  in ECSTELECOM Co on September 2, 2024 and sell it today you would lose (10,500) from holding ECSTELECOM Co or give up 3.53% of portfolio value over 90 days.

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

ECSTELECOM Co  vs.  Digital Power Communications

ECSTELECOM

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ECSTELECOM Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ECSTELECOM is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Digital Power Commun

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Digital Power Communications has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Digital Power is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with ECSTELECOM and Digital Power

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

The idea behind ECSTELECOM Co and Digital Power Communications 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.