Correlation Between Digimarc and Southern Michigan

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

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

Diversification Opportunities for Digimarc and Southern Michigan

0.82

Correlation Coefficient

Digimarc  Southern Michigan

Very poor diversification

The 3 months correlation between Digimarc and Southern is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Digimarc and Southern Michigan Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Michigan Bancorp and Digimarc 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 Digimarc are associated (or correlated) with Southern Michigan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Michigan Bancorp has no effect on the direction of Digimarc i.e., Digimarc and Southern Michigan go up and down completely randomly.

Pair Corralation between Digimarc and Southern Michigan

Given the investment horizon of 90 days Digimarc is expected to generate 1.37 times more return on investment than Southern Michigan. However, Digimarc is 1.37 times more volatile than Southern Michigan Bancorp. It trades about 0.06 of its potential returns per unit of risk. Southern Michigan Bancorp is currently generating about 0.01 per unit of risk. If you would invest  1,805  in Digimarc on September 26, 2024 and sell it today you would earn a total of  1,984  from holding Digimarc or generate 109.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	88.71%
Values	Daily Returns

Digimarc  vs.  Southern Michigan Bancorp

Digimarc

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Digimarc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Digimarc exhibited solid returns over the last few months and may actually be approaching a breakup point.

Southern Michigan Bancorp

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Michigan Bancorp are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal primary indicators, Southern Michigan may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Digimarc and Southern Michigan

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

The idea behind Digimarc and Southern Michigan Bancorp 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.