Correlation Between Display Tech and Digital Power

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

By analyzing existing cross correlation between Display Tech Co and Digital Power Communications, you can compare the effects of market volatilities on Display Tech and Digital Power 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 Display Tech with a short position of Digital Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Display Tech and Digital Power.

Diversification Opportunities for Display Tech and Digital Power

-0.77

Correlation Coefficient

Display Tech  Digital Power

Pay attention - limited upside

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

Pair Corralation between Display Tech and Digital Power

Assuming the 90 days trading horizon Display Tech Co is expected to under-perform the Digital Power. But the stock apears to be less risky and, when comparing its historical volatility, Display Tech Co is 1.1 times less risky than Digital Power. The stock trades about -0.1 of its potential returns per unit of risk. The Digital Power Communications is currently generating about 0.48 of returns per unit of risk over similar time horizon. If you would invest  812,000  in Digital Power Communications on February 15, 2024 and sell it today you would earn a total of  144,000  from holding Digital Power Communications or generate 17.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	90.91%
Values	Daily Returns

Display Tech Co  vs.  Digital Power Communications

Display Tech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Display Tech Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Digital Power Commun

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Digital Power Communications are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Digital Power sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Display Tech and Digital Power

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

The idea behind Display Tech Co and Digital Power Communications 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.