Correlation Between CSP and Digimarc

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

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

Diversification Opportunities for CSP and Digimarc

-0.19

Correlation Coefficient

CSP  Digimarc

Good diversification

The 3 months correlation between CSP and Digimarc is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding CSP Inc and Digimarc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digimarc and CSP 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 CSP Inc are associated (or correlated) with Digimarc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digimarc has no effect on the direction of CSP i.e., CSP and Digimarc go up and down completely randomly.

Pair Corralation between CSP and Digimarc

Given the investment horizon of 90 days CSP Inc is expected to under-perform the Digimarc. But the stock apears to be less risky and, when comparing its historical volatility, CSP Inc is 1.0 times less risky than Digimarc. The stock trades about -0.01 of its potential returns per unit of risk. The Digimarc is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,601  in Digimarc on August 15, 2024 and sell it today you would earn a total of  646.00  from holding Digimarc or generate 24.84% return on investment over 90 days.

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

CSP Inc  vs.  Digimarc

CSP Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CSP Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, CSP is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Digimarc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Digimarc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Digimarc exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CSP and Digimarc

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

The idea behind CSP Inc and Digimarc 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.