Correlation Between Desktop Metal and Western Digital

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

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

Diversification Opportunities for Desktop Metal and Western Digital

0.43

Correlation Coefficient

Desktop Metal  Western Digital

Very weak diversification

The 3 months correlation between Desktop and Western is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Desktop Metal and Western Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Digital and Desktop Metal 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 Desktop Metal 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 Desktop Metal i.e., Desktop Metal and Western Digital go up and down completely randomly.

Pair Corralation between Desktop Metal and Western Digital

Allowing for the 90-day total investment horizon Desktop Metal is expected to under-perform the Western Digital. In addition to that, Desktop Metal is 2.26 times more volatile than Western Digital. It trades about -0.06 of its total potential returns per unit of risk. Western Digital is currently generating about 0.06 per unit of volatility. If you would invest  2,801  in Western Digital on November 28, 2024 and sell it today you would earn a total of  2,106  from holding Western Digital or generate 75.19% return on investment over 90 days.

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

Desktop Metal  vs.  Western Digital

Desktop Metal

Risk-Adjusted Performance

Very Weak

Over the last 90 days Desktop Metal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

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 latest weak performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Desktop Metal and Western Digital

The main advantage of trading using opposite Desktop Metal and Western Digital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Desktop Metal 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 Desktop Metal 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.