Correlation Between United States and WESTERN DIGITAL

Can any of the company-specific risk be diversified away by investing in both United States 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 United States and WESTERN DIGITAL into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between United States Steel and WESTERN DIGITAL, you can compare the effects of market volatilities on United States 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 United States with a short position of WESTERN DIGITAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of United States and WESTERN DIGITAL.

Diversification Opportunities for United States and WESTERN DIGITAL

0.55

Correlation Coefficient

United States  WESTERN DIGITAL

Very weak diversification

The 3 months correlation between United and WESTERN is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and WESTERN DIGITAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WESTERN DIGITAL and United States 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 United States Steel 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 United States i.e., United States and WESTERN DIGITAL go up and down completely randomly.

Pair Corralation between United States and WESTERN DIGITAL

Assuming the 90 days trading horizon United States Steel is expected to under-perform the WESTERN DIGITAL. In addition to that, United States is 1.29 times more volatile than WESTERN DIGITAL. It trades about -0.02 of its total potential returns per unit of risk. WESTERN DIGITAL is currently generating about 0.06 per unit of volatility. If you would invest  5,909  in WESTERN DIGITAL on October 9, 2024 and sell it today you would earn a total of  425.00  from holding WESTERN DIGITAL or generate 7.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

United States Steel  vs.  WESTERN DIGITAL

United States Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United States Steel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, United States is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

WESTERN DIGITAL

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in WESTERN DIGITAL are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile fundamental indicators, WESTERN DIGITAL may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with United States and WESTERN DIGITAL

The main advantage of trading using opposite United States and WESTERN DIGITAL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United States 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 United States Steel 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.