Correlation Between Black Hills and Western Digital

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

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

Diversification Opportunities for Black Hills and Western Digital

0.33

Correlation Coefficient

Black Hills  Western Digital

Weak diversification

The 3 months correlation between Black and Western is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Black Hills and Western Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Digital and Black Hills 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 Black Hills 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 Black Hills i.e., Black Hills and Western Digital go up and down completely randomly.

Pair Corralation between Black Hills and Western Digital

Considering the 90-day investment horizon Black Hills is expected to generate 0.49 times more return on investment than Western Digital. However, Black Hills is 2.04 times less risky than Western Digital. It trades about 0.0 of its potential returns per unit of risk. Western Digital is currently generating about 0.0 per unit of risk. If you would invest  6,022  in Black Hills on September 19, 2024 and sell it today you would lose (16.00) from holding Black Hills or give up 0.27% of portfolio value over 90 days.

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

Black Hills  vs.  Western Digital

Black Hills

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Black Hills has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward-looking signals, Black Hills is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Western Digital

Risk-Adjusted Performance

0 of 100

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 recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Black Hills and Western Digital

The main advantage of trading using opposite Black Hills and Western Digital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Black Hills 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 Black Hills 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.