Correlation Between Western Digital and Stepstone

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

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

Diversification Opportunities for Western Digital and Stepstone

0.45

Correlation Coefficient

Western Digital  Stepstone

Very weak diversification

The 3 months correlation between Western and Stepstone is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital and Stepstone Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepstone Group 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 Stepstone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stepstone Group has no effect on the direction of Western Digital i.e., Western Digital and Stepstone go up and down completely randomly.

Pair Corralation between Western Digital and Stepstone

Considering the 90-day investment horizon Western Digital is expected to generate 1.6 times less return on investment than Stepstone. In addition to that, Western Digital is 1.1 times more volatile than Stepstone Group. It trades about 0.07 of its total potential returns per unit of risk. Stepstone Group is currently generating about 0.12 per unit of volatility. If you would invest  2,390  in Stepstone Group on October 22, 2024 and sell it today you would earn a total of  3,767  from holding Stepstone Group or generate 157.62% return on investment over 90 days.

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

Western Digital  vs.  Stepstone Group

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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Stepstone Group

Risk-Adjusted Performance

1 of 100

Weak

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

Pair Trading with Western Digital and Stepstone

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

The idea behind Western Digital and Stepstone Group 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.