Correlation Between East Africa and Western Digital

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

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

Diversification Opportunities for East Africa and Western Digital

-0.01

Correlation Coefficient

East Africa  Western Digital

Good diversification

The 3 months correlation between East and Western is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding East Africa Metals and Western Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Digital and East Africa 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 East Africa Metals 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 East Africa i.e., East Africa and Western Digital go up and down completely randomly.

Pair Corralation between East Africa and Western Digital

Assuming the 90 days horizon East Africa Metals is expected to generate 5.58 times more return on investment than Western Digital. However, East Africa is 5.58 times more volatile than Western Digital. It trades about 0.06 of its potential returns per unit of risk. Western Digital is currently generating about 0.04 per unit of risk. If you would invest  5.20  in East Africa Metals on September 24, 2024 and sell it today you would earn a total of  5.80  from holding East Africa Metals or generate 111.54% return on investment over 90 days.

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

East Africa Metals  vs.  Western Digital

East Africa Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days East Africa Metals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's primary indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Western Digital

Risk-Adjusted Performance

0 of 100

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 uncertain 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 East Africa and Western Digital

The main advantage of trading using opposite East Africa and Western Digital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if East Africa 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 East Africa Metals 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.