Correlation Between Western Digital and Safety Shot

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

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

Diversification Opportunities for Western Digital and Safety Shot

0.18

Correlation Coefficient

Western Digital  Safety Shot

Average diversification

The 3 months correlation between Western and Safety is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital and Safety Shot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Safety Shot 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 Safety Shot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Safety Shot has no effect on the direction of Western Digital i.e., Western Digital and Safety Shot go up and down completely randomly.

Pair Corralation between Western Digital and Safety Shot

Considering the 90-day investment horizon Western Digital is expected to under-perform the Safety Shot. But the stock apears to be less risky and, when comparing its historical volatility, Western Digital is 1.96 times less risky than Safety Shot. The stock trades about -0.21 of its potential returns per unit of risk. The Safety Shot is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  85.00  in Safety Shot on September 25, 2024 and sell it today you would lose (9.40) from holding Safety Shot or give up 11.06% 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.  Safety Shot

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 rather sound fundamental indicators, Western Digital is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Safety Shot

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Safety Shot has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Western Digital and Safety Shot

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

The idea behind Western Digital and Safety Shot 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.