Correlation Between Reservoir Media and Western Digital

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

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

Diversification Opportunities for Reservoir Media and Western Digital

0.23

Correlation Coefficient

Reservoir Media  Western Digital

Modest diversification

The 3 months correlation between Reservoir and Western is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Reservoir Media and Western Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Digital and Reservoir Media 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 Reservoir Media 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 Reservoir Media i.e., Reservoir Media and Western Digital go up and down completely randomly.

Pair Corralation between Reservoir Media and Western Digital

Given the investment horizon of 90 days Reservoir Media is expected to under-perform the Western Digital. But the stock apears to be less risky and, when comparing its historical volatility, Reservoir Media is 1.14 times less risky than Western Digital. The stock trades about -0.14 of its potential returns per unit of risk. The Western Digital is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  5,550  in Western Digital on December 1, 2024 and sell it today you would lose (657.00) from holding Western Digital or give up 11.84% of portfolio value over 90 days.

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

Reservoir Media  vs.  Western Digital

Reservoir Media

Risk-Adjusted Performance

Very Weak

Over the last 90 days Reservoir Media has generated negative risk-adjusted returns adding no value to investors with long positions. Even with inconsistent performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail 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 Reservoir Media and Western Digital

The main advantage of trading using opposite Reservoir Media and Western Digital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reservoir Media 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 Reservoir Media 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.