Correlation Between Digi International and Dominos Pizza

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

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

Diversification Opportunities for Digi International and Dominos Pizza

0.77

Correlation Coefficient

Digi International  Dominos Pizza

Poor diversification

The 3 months correlation between Digi and Dominos is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Digi International and Dominos Pizza in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dominos Pizza 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 Dominos Pizza. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dominos Pizza has no effect on the direction of Digi International i.e., Digi International and Dominos Pizza go up and down completely randomly.

Pair Corralation between Digi International and Dominos Pizza

Given the investment horizon of 90 days Digi International is expected to under-perform the Dominos Pizza. In addition to that, Digi International is 1.35 times more volatile than Dominos Pizza. It trades about -0.16 of its total potential returns per unit of risk. Dominos Pizza is currently generating about -0.18 per unit of volatility. If you would invest  45,188  in Dominos Pizza on September 23, 2024 and sell it today you would lose (2,570) from holding Dominos Pizza or give up 5.69% of portfolio value over 90 days.

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

Digi International  vs.  Dominos Pizza

Digi International

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Digi International are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating forward indicators, Digi International demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Dominos Pizza

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dominos Pizza are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Dominos Pizza is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Digi International and Dominos Pizza

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

The idea behind Digi International and Dominos Pizza 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 Stocks Directory module to find actively traded stocks across global markets.