Correlation Between Digi International and Passage Bio

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

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

Diversification Opportunities for Digi International and Passage Bio

0.14

Correlation Coefficient

Digi International  Passage Bio

Average diversification

The 3 months correlation between Digi and Passage is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Digi International and Passage Bio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Passage Bio 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 Passage Bio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Passage Bio has no effect on the direction of Digi International i.e., Digi International and Passage Bio go up and down completely randomly.

Pair Corralation between Digi International and Passage Bio

Given the investment horizon of 90 days Digi International is expected to generate 1.6 times less return on investment than Passage Bio. But when comparing it to its historical volatility, Digi International is 5.51 times less risky than Passage Bio. It trades about 0.19 of its potential returns per unit of risk. Passage Bio is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  73.00  in Passage Bio on September 14, 2024 and sell it today you would earn a total of  5.00  from holding Passage Bio or generate 6.85% return on investment over 90 days.

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

Digi International  vs.  Passage Bio

Digi International

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Digi International are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile forward indicators, Digi International demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Passage Bio

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Passage Bio are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Passage Bio reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Digi International and Passage Bio

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

The idea behind Digi International and Passage Bio 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.