Correlation Between American Axle and Western Digital

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

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

Diversification Opportunities for American Axle and Western Digital

0.45

Correlation Coefficient

American Axle  Western Digital

Very weak diversification

The 3 months correlation between American and Western is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding American Axle Manufacturing and Western Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Digital and American Axle 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 American Axle Manufacturing are associated (or correlated) with Western Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Digital has no effect on the direction of American Axle i.e., American Axle and Western Digital go up and down completely randomly.

Pair Corralation between American Axle and Western Digital

Considering the 90-day investment horizon American Axle is expected to generate 15.66 times less return on investment than Western Digital. In addition to that, American Axle is 1.12 times more volatile than Western Digital. It trades about 0.0 of its total potential returns per unit of risk. Western Digital is currently generating about 0.08 per unit of volatility. If you would invest  3,021  in Western Digital on September 18, 2024 and sell it today you would earn a total of  3,509  from holding Western Digital or generate 116.15% return on investment over 90 days.

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

American Axle Manufacturing  vs.  Western Digital

American Axle Manufa

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American Axle Manufacturing are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile basic indicators, American Axle may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Western Digital

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Western Digital are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Western Digital is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with American Axle and Western Digital

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

The idea behind American Axle Manufacturing and Western Digital 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.