Correlation Between Super Micro and Western Digital

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

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

Diversification Opportunities for Super Micro and Western Digital

0.26

Correlation Coefficient

Super Micro  Western Digital

Modest diversification

The 3 months correlation between Super and Western is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Super Micro Computer and Western Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Digital and Super Micro 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 Super Micro Computer 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 Super Micro i.e., Super Micro and Western Digital go up and down completely randomly.

Pair Corralation between Super Micro and Western Digital

Given the investment horizon of 90 days Super Micro Computer is expected to generate 2.68 times more return on investment than Western Digital. However, Super Micro is 2.68 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 -0.05 per unit of risk. If you would invest  3,068  in Super Micro Computer on December 28, 2024 and sell it today you would earn a total of  358.00  from holding Super Micro Computer or generate 11.67% return on investment over 90 days.

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

Super Micro Computer  vs.  Western Digital

Super Micro Computer

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Super Micro Computer are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain fundamental indicators, Super Micro demonstrated 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 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 Super Micro and Western Digital

The main advantage of trading using opposite Super Micro and Western Digital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Super Micro 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 Super Micro Computer 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.