Correlation Between BGF Retail and Digital Power

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

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

Diversification Opportunities for BGF Retail and Digital Power

-0.23

Correlation Coefficient

BGF Retail  Digital Power

Very good diversification

The 3 months correlation between BGF and Digital is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding BGF Retail 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 BGF Retail 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 BGF Retail 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 BGF Retail i.e., BGF Retail and Digital Power go up and down completely randomly.

Pair Corralation between BGF Retail and Digital Power

Assuming the 90 days trading horizon BGF Retail Co is expected to under-perform the Digital Power. In addition to that, BGF Retail is 1.01 times more volatile than Digital Power Communications. It trades about -0.09 of its total potential returns per unit of risk. Digital Power Communications is currently generating about 0.1 per unit of volatility. If you would invest  837,841  in Digital Power Communications on October 1, 2024 and sell it today you would earn a total of  32,159  from holding Digital Power Communications or generate 3.84% return on investment over 90 days.

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

BGF Retail Co  vs.  Digital Power Communications

BGF Retail

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BGF Retail Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Digital Power Commun

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Digital Power Communications are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Digital Power may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BGF Retail and Digital Power

The main advantage of trading using opposite BGF Retail and Digital Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BGF Retail 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 BGF Retail 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.