Correlation Between AeroSpace Technology and Digital Power

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

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

Diversification Opportunities for AeroSpace Technology and Digital Power

0.58

Correlation Coefficient

AeroSpace Technology  Digital Power

Very weak diversification

The 3 months correlation between AeroSpace and Digital is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding AeroSpace Technology of 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 AeroSpace Technology 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 AeroSpace Technology of 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 AeroSpace Technology i.e., AeroSpace Technology and Digital Power go up and down completely randomly.

Pair Corralation between AeroSpace Technology and Digital Power

Assuming the 90 days trading horizon AeroSpace Technology of is expected to under-perform the Digital Power. But the stock apears to be less risky and, when comparing its historical volatility, AeroSpace Technology of is 1.37 times less risky than Digital Power. The stock trades about -0.13 of its potential returns per unit of risk. The Digital Power Communications is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  870,000  in Digital Power Communications on September 4, 2024 and sell it today you would lose (8,000) from holding Digital Power Communications or give up 0.92% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.31%
Values	Daily Returns

AeroSpace Technology of  vs.  Digital Power Communications

AeroSpace Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AeroSpace Technology of has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company 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 AeroSpace Technology and Digital Power

The main advantage of trading using opposite AeroSpace Technology and Digital Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AeroSpace Technology 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 AeroSpace Technology of 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.