Correlation Between Western Digital and Allison

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

By analyzing existing cross correlation between Western Digital and Allison Transmission 5875, you can compare the effects of market volatilities on Western Digital and Allison 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 Allison. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Digital and Allison.

Diversification Opportunities for Western Digital and Allison

0.21

Correlation Coefficient

Western Digital  Allison

Modest diversification

The 3 months correlation between Western and Allison is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital and Allison Transmission 5875 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allison Transmission 5875 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 Allison. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allison Transmission 5875 has no effect on the direction of Western Digital i.e., Western Digital and Allison go up and down completely randomly.

Pair Corralation between Western Digital and Allison

Considering the 90-day investment horizon Western Digital is expected to generate 1.19 times more return on investment than Allison. However, Western Digital is 1.19 times more volatile than Allison Transmission 5875. It trades about -0.21 of its potential returns per unit of risk. Allison Transmission 5875 is currently generating about -0.26 per unit of risk. If you would invest  6,943  in Western Digital on September 25, 2024 and sell it today you would lose (773.00) from holding Western Digital or give up 11.13% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Western Digital  vs.  Allison Transmission 5875

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.

Allison Transmission 5875

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Allison Transmission 5875 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for Allison Transmission 5875 investors.

Pair Trading with Western Digital and Allison

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

The idea behind Western Digital and Allison Transmission 5875 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 Transaction History module to view history of all your transactions and understand their impact on performance.