Correlation Between Western Digital and UNITED

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

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

Diversification Opportunities for Western Digital and UNITED

-0.41

Correlation Coefficient

Western Digital  UNITED

Very good diversification

The 3 months correlation between Western and UNITED is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital and UNITED PARCEL SERVICE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UNITED PARCEL SERVICE 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 UNITED. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UNITED PARCEL SERVICE has no effect on the direction of Western Digital i.e., Western Digital and UNITED go up and down completely randomly.

Pair Corralation between Western Digital and UNITED

Considering the 90-day investment horizon Western Digital is expected to under-perform the UNITED. In addition to that, Western Digital is 1.11 times more volatile than UNITED PARCEL SERVICE. It trades about -0.03 of its total potential returns per unit of risk. UNITED PARCEL SERVICE is currently generating about 0.1 per unit of volatility. If you would invest  8,205  in UNITED PARCEL SERVICE on December 29, 2024 and sell it today you would earn a total of  909.00  from holding UNITED PARCEL SERVICE or generate 11.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	77.05%
Values	Daily Returns

Western Digital  vs.  UNITED PARCEL SERVICE

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 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.

UNITED PARCEL SERVICE

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in UNITED PARCEL SERVICE are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, UNITED sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Western Digital and UNITED

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

The idea behind Western Digital and UNITED PARCEL SERVICE 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.