Correlation Between Western Digital and First Watch

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

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

Diversification Opportunities for Western Digital and First Watch

0.22

Correlation Coefficient

Western Digital  First Watch

Modest diversification

The 3 months correlation between Western and First is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital and First Watch Restaurant in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Watch Restaurant 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 First Watch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Watch Restaurant has no effect on the direction of Western Digital i.e., Western Digital and First Watch go up and down completely randomly.

Pair Corralation between Western Digital and First Watch

Considering the 90-day investment horizon Western Digital is expected to under-perform the First Watch. In addition to that, Western Digital is 1.29 times more volatile than First Watch Restaurant. It trades about -0.16 of its total potential returns per unit of risk. First Watch Restaurant is currently generating about 0.06 per unit of volatility. If you would invest  1,824  in First Watch Restaurant on September 23, 2024 and sell it today you would earn a total of  37.00  from holding First Watch Restaurant or generate 2.03% return on investment over 90 days.

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

Western Digital  vs.  First Watch Restaurant

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 latest uncertain performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

First Watch Restaurant

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Watch Restaurant are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, First Watch reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Western Digital and First Watch

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

The idea behind Western Digital and First Watch Restaurant 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.