Correlation Between Lenovo Group and Western Digital

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Can any of the company-specific risk be diversified away by investing in both Lenovo Group 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 Lenovo Group and Western Digital into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lenovo Group Ltd and Western Digital, you can compare the effects of market volatilities on Lenovo Group 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 Lenovo Group with a short position of Western Digital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lenovo Group and Western Digital.

Diversification Opportunities for Lenovo Group and Western Digital

-0.08
  Correlation Coefficient

Good diversification

The 3 months correlation between Lenovo and Western is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Lenovo Group Ltd and Western Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Digital and Lenovo Group 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 Lenovo Group Ltd 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 Lenovo Group i.e., Lenovo Group and Western Digital go up and down completely randomly.

Pair Corralation between Lenovo Group and Western Digital

Assuming the 90 days horizon Lenovo Group Ltd is expected to under-perform the Western Digital. But the pink sheet apears to be less risky and, when comparing its historical volatility, Lenovo Group Ltd is 1.11 times less risky than Western Digital. The pink sheet trades about -0.3 of its potential returns per unit of risk. The Western Digital is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  6,072  in Western Digital on January 20, 2024 and sell it today you would earn a total of  760.00  from holding Western Digital or generate 12.52% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy95.45%
ValuesDaily Returns

Lenovo Group Ltd  vs.  Western Digital

 Performance 
       Timeline  
Lenovo Group 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Lenovo Group Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.
Western Digital 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Western Digital are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting fundamental indicators, Western Digital exhibited solid returns over the last few months and may actually be approaching a breakup point.

Lenovo Group and Western Digital Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Lenovo Group and Western Digital

The main advantage of trading using opposite Lenovo Group and Western Digital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lenovo Group 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 Lenovo Group Ltd 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.
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.

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