Correlation Between Western Digital and Home Depot
Can any of the company-specific risk be diversified away by investing in both Western Digital and Home Depot 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 Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Western Digital and The Home Depot, you can compare the effects of market volatilities on Western Digital and Home Depot 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 Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Digital and Home Depot.
Diversification Opportunities for Western Digital and Home Depot
0.34 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Western and Home is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot 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 Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of Western Digital i.e., Western Digital and Home Depot go up and down completely randomly.
Pair Corralation between Western Digital and Home Depot
Assuming the 90 days trading horizon Western Digital is expected to generate 2.06 times more return on investment than Home Depot. However, Western Digital is 2.06 times more volatile than The Home Depot. It trades about 0.07 of its potential returns per unit of risk. The Home Depot is currently generating about 0.11 per unit of risk. If you would invest 19,163 in Western Digital on September 1, 2024 and sell it today you would earn a total of 17,337 from holding Western Digital or generate 90.47% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 99.2% |
Values | Daily Returns |
Western Digital vs. The Home Depot
Performance |
Timeline |
Western Digital |
Home Depot |
Western Digital and Home Depot Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Western Digital and Home Depot
The main advantage of trading using opposite Western Digital and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Digital position performs unexpectedly, Home Depot 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 Home Depot will offset losses from the drop in Home Depot's long position.Western Digital vs. Unity Software | Western Digital vs. Capital One Financial | Western Digital vs. Prudential Financial | Western Digital vs. CVS Health |
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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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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