Correlation Between Thomas Scott and Digjam

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

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

Diversification Opportunities for Thomas Scott and Digjam

0.22

Correlation Coefficient

Thomas Scott  Digjam

Modest diversification

The 3 months correlation between Thomas and Digjam is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Thomas Scott Limited and Digjam Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digjam Limited and Thomas Scott 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 Thomas Scott Limited are associated (or correlated) with Digjam. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digjam Limited has no effect on the direction of Thomas Scott i.e., Thomas Scott and Digjam go up and down completely randomly.

Pair Corralation between Thomas Scott and Digjam

Assuming the 90 days trading horizon Thomas Scott Limited is expected to generate 1.44 times more return on investment than Digjam. However, Thomas Scott is 1.44 times more volatile than Digjam Limited. It trades about 0.22 of its potential returns per unit of risk. Digjam Limited is currently generating about -0.02 per unit of risk. If you would invest  24,600  in Thomas Scott Limited on September 19, 2024 and sell it today you would earn a total of  14,691  from holding Thomas Scott Limited or generate 59.72% return on investment over 90 days.

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

Thomas Scott Limited  vs.  Digjam Limited

Thomas Scott Limited

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Thomas Scott Limited are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Thomas Scott exhibited solid returns over the last few months and may actually be approaching a breakup point.

Digjam Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Digjam Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent primary indicators, Digjam is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Thomas Scott and Digjam

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

The idea behind Thomas Scott Limited and Digjam Limited 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.