Correlation Between Western Digital and Canopy Growth

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

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

Diversification Opportunities for Western Digital and Canopy Growth

0.45

Correlation Coefficient

Western Digital  Canopy Growth

Very weak diversification

The 3 months correlation between Western and Canopy is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital and Canopy Growth Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canopy Growth Corp 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 Canopy Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canopy Growth Corp has no effect on the direction of Western Digital i.e., Western Digital and Canopy Growth go up and down completely randomly.

Pair Corralation between Western Digital and Canopy Growth

Considering the 90-day investment horizon Western Digital is expected to generate 0.79 times more return on investment than Canopy Growth. However, Western Digital is 1.27 times less risky than Canopy Growth. It trades about -0.16 of its potential returns per unit of risk. Canopy Growth Corp is currently generating about -0.31 per unit of risk. If you would invest  6,990  in Western Digital on October 12, 2024 and sell it today you would lose (584.00) from holding Western Digital or give up 8.35% of portfolio value over 90 days.

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

Western Digital  vs.  Canopy Growth Corp

Western Digital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Digital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Western Digital is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Canopy Growth Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canopy Growth Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Western Digital and Canopy Growth

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

The idea behind Western Digital and Canopy Growth Corp 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.