Correlation Between Western Digital and GMO Internet

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

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

Diversification Opportunities for Western Digital and GMO Internet

-0.11

Correlation Coefficient

Western Digital  GMO Internet

Good diversification

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

Pair Corralation between Western Digital and GMO Internet

Considering the 90-day investment horizon Western Digital is expected to under-perform the GMO Internet. In addition to that, Western Digital is 1.59 times more volatile than GMO Internet. It trades about -0.15 of its total potential returns per unit of risk. GMO Internet is currently generating about -0.16 per unit of volatility. If you would invest  1,775  in GMO Internet on October 10, 2024 and sell it today you would lose (95.00) from holding GMO Internet or give up 5.35% 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.  GMO Internet

Western Digital

Risk-Adjusted Performance

1 of 100

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.

GMO Internet

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GMO Internet has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, GMO Internet is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Western Digital and GMO Internet

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

The idea behind Western Digital and GMO Internet 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.