Correlation Between Western Digital and ECGI Holdings

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

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

Diversification Opportunities for Western Digital and ECGI Holdings

0.11

Correlation Coefficient

Western Digital  ECGI Holdings

Average diversification

The 3 months correlation between Western and ECGI is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital and ECGI Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ECGI Holdings 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 ECGI Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ECGI Holdings has no effect on the direction of Western Digital i.e., Western Digital and ECGI Holdings go up and down completely randomly.

Pair Corralation between Western Digital and ECGI Holdings

Considering the 90-day investment horizon Western Digital is expected to generate 9.27 times less return on investment than ECGI Holdings. But when comparing it to its historical volatility, Western Digital is 8.76 times less risky than ECGI Holdings. It trades about 0.05 of its potential returns per unit of risk. ECGI Holdings is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  5.40  in ECGI Holdings on October 11, 2024 and sell it today you would lose (5.30) from holding ECGI Holdings or give up 98.15% 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.  ECGI Holdings

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.

ECGI Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ECGI Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly unsteady technical and fundamental indicators, ECGI Holdings may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Western Digital and ECGI Holdings

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

The idea behind Western Digital and ECGI Holdings 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.