Correlation Between Western Digital and Australian Agricultural

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

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

Diversification Opportunities for Western Digital and Australian Agricultural

0.25

Correlation Coefficient

Western Digital  Australian Agricultural

Modest diversification

The 3 months correlation between Western and Australian is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital and Australian Agricultural in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Australian Agricultural 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 Australian Agricultural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Australian Agricultural has no effect on the direction of Western Digital i.e., Western Digital and Australian Agricultural go up and down completely randomly.

Pair Corralation between Western Digital and Australian Agricultural

Assuming the 90 days horizon Western Digital is expected to generate 1.87 times more return on investment than Australian Agricultural. However, Western Digital is 1.87 times more volatile than Australian Agricultural. It trades about 0.32 of its potential returns per unit of risk. Australian Agricultural is currently generating about -0.13 per unit of risk. If you would invest  5,821  in Western Digital on October 24, 2024 and sell it today you would earn a total of  679.00  from holding Western Digital or generate 11.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	94.44%
Values	Daily Returns

Western Digital  vs.  Australian Agricultural

Western Digital

Risk-Adjusted Performance

3 of 100

Weak

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

Australian Agricultural

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Australian Agricultural has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Western Digital and Australian Agricultural

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

The idea behind Western Digital and Australian Agricultural 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.