Correlation Between Digi International and Clearfield

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

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

Diversification Opportunities for Digi International and Clearfield

-0.72

Correlation Coefficient

Digi International  Clearfield

Pay attention - limited upside

The 3 months correlation between Digi and Clearfield is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Digi International and Clearfield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clearfield and Digi International 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 Digi International are associated (or correlated) with Clearfield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clearfield has no effect on the direction of Digi International i.e., Digi International and Clearfield go up and down completely randomly.

Pair Corralation between Digi International and Clearfield

Given the investment horizon of 90 days Digi International is expected to generate 0.85 times more return on investment than Clearfield. However, Digi International is 1.18 times less risky than Clearfield. It trades about 0.17 of its potential returns per unit of risk. Clearfield is currently generating about -0.25 per unit of risk. If you would invest  2,983  in Digi International on August 31, 2024 and sell it today you would earn a total of  284.00  from holding Digi International or generate 9.52% return on investment over 90 days.

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

Digi International  vs.  Clearfield

Digi International

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Digi International are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak forward indicators, Digi International demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Clearfield

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Clearfield has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Digi International and Clearfield

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

The idea behind Digi International and Clearfield 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.