Correlation Between Western Digital and Super Micro

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

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

Diversification Opportunities for Western Digital and Super Micro

0.27

Correlation Coefficient

Western Digital  Super Micro

Modest diversification

The 3 months correlation between Western and Super is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital and Super Micro Computer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Super Micro Computer 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 Super Micro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Super Micro Computer has no effect on the direction of Western Digital i.e., Western Digital and Super Micro go up and down completely randomly.

Pair Corralation between Western Digital and Super Micro

Considering the 90-day investment horizon Western Digital is expected to under-perform the Super Micro. But the stock apears to be less risky and, when comparing its historical volatility, Western Digital is 2.68 times less risky than Super Micro. The stock trades about -0.05 of its potential returns per unit of risk. The Super Micro Computer is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3,068  in Super Micro Computer on December 28, 2024 and sell it today you would earn a total of  358.00  from holding Super Micro Computer or generate 11.67% 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.  Super Micro Computer

Western Digital

Risk-Adjusted Performance

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 weak 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.

Super Micro Computer

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Super Micro Computer are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain fundamental indicators, Super Micro demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Western Digital and Super Micro

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

The idea behind Western Digital and Super Micro Computer 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.