Correlation Between Western Digital and Healthpeak Properties

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

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

Diversification Opportunities for Western Digital and Healthpeak Properties

0.02

Correlation Coefficient

Western Digital  Healthpeak Properties

Significant diversification

The 3 months correlation between Western and Healthpeak is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital and Healthpeak Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Healthpeak Properties 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 Healthpeak Properties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Healthpeak Properties has no effect on the direction of Western Digital i.e., Western Digital and Healthpeak Properties go up and down completely randomly.

Pair Corralation between Western Digital and Healthpeak Properties

Assuming the 90 days trading horizon Western Digital is expected to under-perform the Healthpeak Properties. In addition to that, Western Digital is 2.55 times more volatile than Healthpeak Properties. It trades about -0.05 of its total potential returns per unit of risk. Healthpeak Properties is currently generating about -0.11 per unit of volatility. If you would invest  13,312  in Healthpeak Properties on November 29, 2024 and sell it today you would lose (1,773) from holding Healthpeak Properties or give up 13.32% of portfolio value over 90 days.

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

Western Digital  vs.  Healthpeak Properties

Western Digital

Risk-Adjusted Performance

Very Weak

Over the last 90 days Western Digital has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's fundamental indicators remain somewhat strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Healthpeak Properties

Risk-Adjusted Performance

Very Weak

Over the last 90 days Healthpeak Properties has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Western Digital and Healthpeak Properties

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

The idea behind Western Digital and Healthpeak Properties 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.