Correlation Between Western Digital and Davis Commodities

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

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

Diversification Opportunities for Western Digital and Davis Commodities

-0.33

Correlation Coefficient

Western Digital  Davis Commodities

Very good diversification

The 3 months correlation between Western and Davis is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital and Davis Commodities Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis Commodities 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 Davis Commodities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davis Commodities has no effect on the direction of Western Digital i.e., Western Digital and Davis Commodities go up and down completely randomly.

Pair Corralation between Western Digital and Davis Commodities

Considering the 90-day investment horizon Western Digital is expected to under-perform the Davis Commodities. But the stock apears to be less risky and, when comparing its historical volatility, Western Digital is 2.27 times less risky than Davis Commodities. The stock trades about -0.13 of its potential returns per unit of risk. The Davis Commodities Limited is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  109.00  in Davis Commodities Limited on October 11, 2024 and sell it today you would lose (6.00) from holding Davis Commodities Limited or give up 5.5% of portfolio value over 90 days.

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

Western Digital  vs.  Davis Commodities Limited

Western Digital

Risk-Adjusted Performance

0 of 100

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.

Davis Commodities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Davis Commodities Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Western Digital and Davis Commodities

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

The idea behind Western Digital and Davis Commodities Limited 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.