Correlation Between Western Digital and SEIKO EPSON

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

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

Diversification Opportunities for Western Digital and SEIKO EPSON

0.56

Correlation Coefficient

Western Digital  SEIKO EPSON

Very weak diversification

The 3 months correlation between Western and SEIKO is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital and SEIKO EPSON PADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SEIKO EPSON PADR 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 SEIKO EPSON. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SEIKO EPSON PADR has no effect on the direction of Western Digital i.e., Western Digital and SEIKO EPSON go up and down completely randomly.

Pair Corralation between Western Digital and SEIKO EPSON

Assuming the 90 days horizon Western Digital is expected to generate 1.22 times more return on investment than SEIKO EPSON. However, Western Digital is 1.22 times more volatile than SEIKO EPSON PADR. It trades about 0.1 of its potential returns per unit of risk. SEIKO EPSON PADR is currently generating about 0.08 per unit of risk. If you would invest  5,678  in Western Digital on September 13, 2024 and sell it today you would earn a total of  842.00  from holding Western Digital or generate 14.83% return on investment over 90 days.

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

Western Digital  vs.  SEIKO EPSON PADR

Western Digital

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Digital are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Western Digital reported solid returns over the last few months and may actually be approaching a breakup point.

SEIKO EPSON PADR

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SEIKO EPSON PADR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, SEIKO EPSON may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Western Digital and SEIKO EPSON

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

The idea behind Western Digital and SEIKO EPSON PADR 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.