Correlation Between XAAR PLC and Western Digital

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

By analyzing existing cross correlation between XAAR PLC LS 10 and Western Digital, you can compare the effects of market volatilities on XAAR PLC and Western Digital 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 XAAR PLC with a short position of Western Digital. Check out your portfolio center. Please also check ongoing floating volatility patterns of XAAR PLC and Western Digital.

Diversification Opportunities for XAAR PLC and Western Digital

0.82

Correlation Coefficient

XAAR PLC  Western Digital

Very poor diversification

The 3 months correlation between XAAR and Western is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding XAAR PLC LS 10 and Western Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Digital and XAAR PLC 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 XAAR PLC LS 10 are associated (or correlated) with Western Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Digital has no effect on the direction of XAAR PLC i.e., XAAR PLC and Western Digital go up and down completely randomly.

Pair Corralation between XAAR PLC and Western Digital

Assuming the 90 days horizon XAAR PLC LS 10 is expected to generate 1.03 times more return on investment than Western Digital. However, XAAR PLC is 1.03 times more volatile than Western Digital. It trades about -0.04 of its potential returns per unit of risk. Western Digital is currently generating about -0.12 per unit of risk. If you would invest  82.00  in XAAR PLC LS 10 on December 26, 2024 and sell it today you would lose (12.00) from holding XAAR PLC LS 10 or give up 14.63% of portfolio value over 90 days.

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

XAAR PLC LS 10  vs.  Western Digital

XAAR PLC LS

Risk-Adjusted Performance

Very Weak

Over the last 90 days XAAR PLC LS 10 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with XAAR PLC and Western Digital

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

The idea behind XAAR PLC LS 10 and Western Digital 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.