Correlation Between Western Digital and Raytheon Technologies

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

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

Diversification Opportunities for Western Digital and Raytheon Technologies

0.2

Correlation Coefficient

Western Digital  Raytheon Technologies

Modest diversification

The 3 months correlation between Western and Raytheon is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital and Raytheon Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Raytheon Technologies 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 Raytheon Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Raytheon Technologies has no effect on the direction of Western Digital i.e., Western Digital and Raytheon Technologies go up and down completely randomly.

Pair Corralation between Western Digital and Raytheon Technologies

Assuming the 90 days trading horizon Western Digital is expected to under-perform the Raytheon Technologies. In addition to that, Western Digital is 1.91 times more volatile than Raytheon Technologies. It trades about -0.3 of its total potential returns per unit of risk. Raytheon Technologies is currently generating about 0.04 per unit of volatility. If you would invest  11,846  in Raytheon Technologies on October 6, 2024 and sell it today you would earn a total of  84.00  from holding Raytheon Technologies 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.  Raytheon Technologies

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.

Raytheon Technologies

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Raytheon Technologies are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Raytheon Technologies 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 Raytheon Technologies

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

The idea behind Western Digital and Raytheon Technologies 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.