Correlation Between Innometry and Digital Power

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

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

Diversification Opportunities for Innometry and Digital Power

0.66

Correlation Coefficient

Innometry  Digital Power

Poor diversification

The 3 months correlation between Innometry and Digital is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Innometry 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 Innometry 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 Innometry 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 Innometry i.e., Innometry and Digital Power go up and down completely randomly.

Pair Corralation between Innometry and Digital Power

Assuming the 90 days trading horizon Innometry Co is expected to under-perform the Digital Power. In addition to that, Innometry is 1.14 times more volatile than Digital Power Communications. It trades about -0.16 of its total potential returns per unit of risk. Digital Power Communications is currently generating about -0.05 per unit of volatility. If you would invest  881,000  in Digital Power Communications on August 31, 2024 and sell it today you would lose (74,000) from holding Digital Power Communications or give up 8.4% of portfolio value over 90 days.

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

Innometry Co  vs.  Digital Power Communications

Innometry

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Innometry Co 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 December 2024. 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 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.

Pair Trading with Innometry and Digital Power

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

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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.