Can any of the company-specific risk be diversified away by investing in both Ssangyong Information 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 Ssangyong Information and Digital Power into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ssangyong Information Communication and Digital Power Communications, you can compare the effects of market volatilities on Ssangyong Information 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 Ssangyong Information with a short position of Digital Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ssangyong Information and Digital Power.
Diversification Opportunities for Ssangyong Information and Digital Power
The 3 months correlation between Ssangyong and Digital is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding Ssangyong Information Communic 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 Ssangyong Information 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 Ssangyong Information Communication 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 Ssangyong Information i.e., Ssangyong Information and Digital Power go up and down completely randomly.
Pair Corralation between Ssangyong Information and Digital Power
Assuming the 90 days trading horizon Ssangyong Information Communication is expected to under-perform the Digital Power. But the stock apears to be less risky and, when comparing its historical volatility, Ssangyong Information Communication is 2.51 times less risky than Digital Power. The stock trades about -0.39 of its potential returns per unit of risk. The Digital Power Communications is currently generating about 0.53 of returns per unit of risk over similar time horizon. If you would invest 905,000 in Digital Power Communications on March 6, 2024 and sell it today you would earn a total of 194,000 from holding Digital Power Communications or generate 21.44% return on investment over 90 days.
Over the last 90 days Ssangyong Information Communication has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long term up-swing for the company investors.
Compared to the overall equity markets, risk-adjusted returns on investments in Digital Power Communications are ranked lower than 34 (%) 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.