Correlation Between Western Digital and HUSI11

Can any of the company-specific risk be diversified away by investing in both Western Digital and HUSI11 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 HUSI11 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Western Digital and HUSI11, you can compare the effects of market volatilities on Western Digital and HUSI11 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 HUSI11. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Digital and HUSI11.

Diversification Opportunities for Western Digital and HUSI11

0.39

Correlation Coefficient

Western Digital  HUSI11

Weak diversification

The 3 months correlation between Western and HUSI11 is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital and HUSI11 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HUSI11 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 HUSI11. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HUSI11 has no effect on the direction of Western Digital i.e., Western Digital and HUSI11 go up and down completely randomly.

Pair Corralation between Western Digital and HUSI11

Assuming the 90 days trading horizon Western Digital is expected to under-perform the HUSI11. In addition to that, Western Digital is 14.72 times more volatile than HUSI11. It trades about -0.3 of its total potential returns per unit of risk. HUSI11 is currently generating about 0.24 per unit of volatility. If you would invest  121,635  in HUSI11 on October 6, 2024 and sell it today you would earn a total of  865.00  from holding HUSI11 or generate 0.71% return on investment over 90 days.

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

Western Digital  vs.  HUSI11

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.

HUSI11

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HUSI11 are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat strong basic indicators, HUSI11 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Western Digital and HUSI11

The main advantage of trading using opposite Western Digital and HUSI11 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Digital position performs unexpectedly, HUSI11 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 HUSI11 will offset losses from the drop in HUSI11's long position.

The idea behind Western Digital and HUSI11 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.