Correlation Between Western Digital and Lenovo

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

Diversification Opportunities for Western Digital and Lenovo

0.25
  Correlation Coefficient

Modest diversification

The 3 months correlation between Western and Lenovo is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital and Lenovo Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lenovo 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 Lenovo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lenovo Group has no effect on the direction of Western Digital i.e., Western Digital and Lenovo go up and down completely randomly.

Pair Corralation between Western Digital and Lenovo

Considering the 90-day investment horizon Western Digital is expected to generate 0.85 times more return on investment than Lenovo. However, Western Digital is 1.18 times less risky than Lenovo. It trades about 0.05 of its potential returns per unit of risk. Lenovo Group is currently generating about -0.14 per unit of risk. If you would invest  6,815  in Western Digital on January 26, 2024 and sell it today you would earn a total of  140.00  from holding Western Digital or generate 2.05% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Western Digital  vs.  Lenovo Group

 Performance 
       Timeline  
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 weak fundamental indicators, Western Digital exhibited solid returns over the last few months and may actually be approaching a breakup point.
Lenovo Group 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Lenovo Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's technical and fundamental 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 and Lenovo Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Western Digital and Lenovo

The main advantage of trading using opposite Western Digital and Lenovo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Digital position performs unexpectedly, Lenovo 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 Lenovo will offset losses from the drop in Lenovo's long position.
The idea behind Western Digital and Lenovo 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.
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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..

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