Correlation Between Western Digital and Dow Jones

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

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

Diversification Opportunities for Western Digital and Dow Jones

0.91

Correlation Coefficient

Western Digital  Dow Jones

Almost no diversification

The 3 months correlation between Western and Dow is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital and Dow Jones Toys in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Toys 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 Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Toys has no effect on the direction of Western Digital i.e., Western Digital and Dow Jones go up and down completely randomly.

Pair Corralation between Western Digital and Dow Jones

Considering the 90-day investment horizon Western Digital is expected to generate 73.35 times less return on investment than Dow Jones. In addition to that, Western Digital is 2.53 times more volatile than Dow Jones Toys. It trades about 0.0 of its total potential returns per unit of risk. Dow Jones Toys is currently generating about 0.28 per unit of volatility. If you would invest  2,274  in Dow Jones Toys on February 1, 2024 and sell it today you would earn a total of  132.00  from holding Dow Jones Toys or generate 5.8% return on investment over 90 days.

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

Western Digital  vs.  Dow Jones Toys

Western Digital

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Western Digital are ranked lower than 12 (%) 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.

Dow Jones Toys

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dow Jones Toys are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Dow Jones displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Western Digital and Dow Jones

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

The idea behind Western Digital and Dow Jones Toys 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.