Correlation Between Western Digital and Halliburton

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

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

Diversification Opportunities for Western Digital and Halliburton

0.57

Correlation Coefficient

Western Digital  Halliburton

Very weak diversification

The 3 months correlation between Western and Halliburton is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital and Halliburton in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Halliburton and Western Digital 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 Western Digital are associated (or correlated) with Halliburton. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Halliburton has no effect on the direction of Western Digital i.e., Western Digital and Halliburton go up and down completely randomly.

Pair Corralation between Western Digital and Halliburton

Assuming the 90 days trading horizon Western Digital is expected to generate 2.57 times less return on investment than Halliburton. But when comparing it to its historical volatility, Western Digital is 1.08 times less risky than Halliburton. It trades about 0.01 of its potential returns per unit of risk. Halliburton is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  17,379  in Halliburton on October 7, 2024 and sell it today you would lose (141.00) from holding Halliburton or give up 0.81% of portfolio value over 90 days.

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

Western Digital  vs.  Halliburton

Western Digital

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Western Digital are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Western Digital may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Halliburton

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Halliburton are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Halliburton may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Western Digital and Halliburton

The main advantage of trading using opposite Western Digital and Halliburton positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Digital position performs unexpectedly, Halliburton 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 Halliburton will offset losses from the drop in Halliburton's long position.

The idea behind Western Digital and Halliburton 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.

Check out your portfolio center.

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.