Correlation Between First Community and Western Digital

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Can any of the company-specific risk be diversified away by investing in both First Community 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 First Community and Western Digital into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Community Bancshares and Western Digital, you can compare the effects of market volatilities on First Community 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 First Community with a short position of Western Digital. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Community and Western Digital.

Diversification Opportunities for First Community and Western Digital

FirstWesternDiversified AwayFirstWesternDiversified Away100%
0.44
  Correlation Coefficient

Very weak diversification

The 3 months correlation between First and Western is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding First Community Bancshares and Western Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Digital and First Community 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 First Community Bancshares 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 First Community i.e., First Community and Western Digital go up and down completely randomly.

Pair Corralation between First Community and Western Digital

Given the investment horizon of 90 days First Community Bancshares is expected to under-perform the Western Digital. But the stock apears to be less risky and, when comparing its historical volatility, First Community Bancshares is 1.38 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 0.01 of returns per unit of risk over similar time horizon. If you would invest  6,943  in Western Digital on November 24, 2024 and sell it today you would lose (72.00) from holding Western Digital or give up 1.04% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

First Community Bancshares  vs.  Western Digital

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -15-10-5051015
JavaScript chart by amCharts 3.21.15FCBC WDC
       Timeline  
First Community Banc 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days First Community Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental drivers remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb384042444648
Western Digital 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
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.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb6062646668707274

First Community and Western Digital Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-2.96-2.22-1.48-0.730.00.661.332.02.68 0.060.070.080.090.100.110.120.13
JavaScript chart by amCharts 3.21.15FCBC WDC
       Returns  

Pair Trading with First Community and Western Digital

The main advantage of trading using opposite First Community and Western Digital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Community 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 First Community Bancshares 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.

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