Correlation Between Australian Agricultural and Western Digital

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

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

Diversification Opportunities for Australian Agricultural and Western Digital

0.18

Correlation Coefficient

Australian Agricultural  Western Digital

Average diversification

The 3 months correlation between Australian and Western is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Australian Agricultural and Western Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Digital and Australian Agricultural 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 Australian Agricultural 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 Australian Agricultural i.e., Australian Agricultural and Western Digital go up and down completely randomly.

Pair Corralation between Australian Agricultural and Western Digital

Assuming the 90 days horizon Australian Agricultural is expected to under-perform the Western Digital. But the stock apears to be less risky and, when comparing its historical volatility, Australian Agricultural is 1.87 times less risky than Western Digital. The stock trades about -0.13 of its potential returns per unit of risk. The Western Digital is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  5,821  in Western Digital on October 24, 2024 and sell it today you would earn a total of  679.00  from holding Western Digital or generate 11.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	94.44%
Values	Daily Returns

Australian Agricultural  vs.  Western Digital

Australian Agricultural

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Australian Agricultural has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Western Digital

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Western Digital are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Western Digital may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Australian Agricultural and Western Digital

The main advantage of trading using opposite Australian Agricultural and Western Digital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Australian Agricultural 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 Australian Agricultural 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.

Check out your portfolio center.

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 Bonds Directory module to find actively traded corporate debentures issued by US companies.