Correlation Between Better Home and Western Digital

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

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

Diversification Opportunities for Better Home and Western Digital

0.07

Correlation Coefficient

Better Home  Western Digital

Significant diversification

The 3 months correlation between Better and Western is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Better Home Finance and Western Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Digital and Better Home 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 Better Home Finance 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 Better Home i.e., Better Home and Western Digital go up and down completely randomly.

Pair Corralation between Better Home and Western Digital

Assuming the 90 days horizon Better Home Finance is expected to generate 7.46 times more return on investment than Western Digital. However, Better Home is 7.46 times more volatile than Western Digital. It trades about 0.08 of its potential returns per unit of risk. Western Digital is currently generating about -0.03 per unit of risk. If you would invest  11.00  in Better Home Finance on December 28, 2024 and sell it today you would lose (1.34) from holding Better Home Finance or give up 12.18% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	70.0%
Values	Daily Returns

Better Home Finance  vs.  Western Digital

Better Home Finance

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Better Home Finance are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Better Home showed solid returns over the last few months and may actually be approaching a breakup point.

Western Digital

Risk-Adjusted Performance

Very Weak

Over the last 90 days Western Digital has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Better Home and Western Digital

The main advantage of trading using opposite Better Home and Western Digital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Better Home 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 Better Home Finance 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.