Correlation Between Western Digital and Forward Pharma

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

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

Diversification Opportunities for Western Digital and Forward Pharma

-0.59

Correlation Coefficient

Western Digital  Forward Pharma

Excellent diversification

The 3 months correlation between Western and Forward is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital and Forward Pharma AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Forward Pharma AS 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 Forward Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Forward Pharma AS has no effect on the direction of Western Digital i.e., Western Digital and Forward Pharma go up and down completely randomly.

Pair Corralation between Western Digital and Forward Pharma

Considering the 90-day investment horizon Western Digital is expected to generate 9.01 times less return on investment than Forward Pharma. But when comparing it to its historical volatility, Western Digital is 2.1 times less risky than Forward Pharma. It trades about 0.06 of its potential returns per unit of risk. Forward Pharma AS is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  255.00  in Forward Pharma AS on October 9, 2024 and sell it today you would earn a total of  45.00  from holding Forward Pharma AS or generate 17.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	2.83%
Values	Daily Returns

Western Digital  vs.  Forward Pharma AS

Western Digital

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Western Digital are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Forward Pharma AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Forward Pharma AS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Forward Pharma 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 Forward Pharma

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

The idea behind Western Digital and Forward Pharma AS 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.