Correlation Between Old Dominion and Western Digital

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

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

Diversification Opportunities for Old Dominion and Western Digital

0.42

Correlation Coefficient

Old Dominion  Western Digital

Very weak diversification

The 3 months correlation between Old and Western is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Old Dominion Freight and Western Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Digital and Old Dominion 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 Old Dominion Freight 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 Old Dominion i.e., Old Dominion and Western Digital go up and down completely randomly.

Pair Corralation between Old Dominion and Western Digital

Given the investment horizon of 90 days Old Dominion is expected to generate 1.04 times less return on investment than Western Digital. In addition to that, Old Dominion is 1.04 times more volatile than Western Digital. It trades about 0.11 of its total potential returns per unit of risk. Western Digital is currently generating about 0.12 per unit of volatility. If you would invest  6,306  in Western Digital on September 3, 2024 and sell it today you would earn a total of  1,037  from holding Western Digital or generate 16.44% return on investment over 90 days.

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

Old Dominion Freight  vs.  Western Digital

Old Dominion Freight

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Old Dominion Freight are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Old Dominion disclosed solid returns over the last few months and may actually be approaching a breakup point.

Western Digital

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Digital are ranked lower than 9 (%) 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.

Pair Trading with Old Dominion and Western Digital

The main advantage of trading using opposite Old Dominion and Western Digital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Old Dominion 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 Old Dominion Freight 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.