Correlation Between Western Digital and NetApp

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

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

Diversification Opportunities for Western Digital and NetApp

0.22

Correlation Coefficient

Western Digital  NetApp

Modest diversification

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

Pair Corralation between Western Digital and NetApp

Considering the 90-day investment horizon Western Digital is expected to generate 1.3 times more return on investment than NetApp. However, Western Digital is 1.3 times more volatile than NetApp Inc. It trades about 0.07 of its potential returns per unit of risk. NetApp Inc is currently generating about 0.03 per unit of risk. If you would invest  6,559  in Western Digital on August 30, 2024 and sell it today you would earn a total of  591.00  from holding Western Digital or generate 9.01% 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.  NetApp Inc

Western Digital

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Western Digital are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent fundamental indicators, Western Digital may actually be approaching a critical reversion point that can send shares even higher in December 2024.

NetApp Inc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NetApp Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, NetApp is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Western Digital and NetApp

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

The idea behind Western Digital and NetApp Inc 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.