Correlation Between Seagate Technology and Western Digital

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

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

Diversification Opportunities for Seagate Technology and Western Digital

0.44

Correlation Coefficient

Seagate Technology  Western Digital

Very weak diversification

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

Pair Corralation between Seagate Technology and Western Digital

Considering the 90-day investment horizon Seagate Technology is expected to generate 4.79 times less return on investment than Western Digital. But when comparing it to its historical volatility, Seagate Technology PLC is 1.27 times less risky than Western Digital. It trades about 0.02 of its potential returns per unit of risk. Western Digital is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  6,559  in Western Digital on August 30, 2024 and sell it today you would earn a total of  591.00  from holding Western Digital or generate 9.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Seagate Technology PLC  vs.  Western Digital

Seagate Technology PLC

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Seagate Technology PLC are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Seagate Technology is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Western Digital

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Western Digital are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent fundamental indicators, Western Digital may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Seagate Technology and Western Digital

The main advantage of trading using opposite Seagate Technology and Western Digital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Seagate Technology 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 Seagate Technology PLC 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.