Correlation Between Western Digital and Walmart

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

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

Diversification Opportunities for Western Digital and Walmart

0.15

Correlation Coefficient

Western Digital  Walmart

Average diversification

The 3 months correlation between Western and Walmart is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital and Walmart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walmart 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 Walmart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walmart has no effect on the direction of Western Digital i.e., Western Digital and Walmart go up and down completely randomly.

Pair Corralation between Western Digital and Walmart

Assuming the 90 days trading horizon Western Digital is expected to generate 1.63 times less return on investment than Walmart. In addition to that, Western Digital is 1.77 times more volatile than Walmart. It trades about 0.07 of its total potential returns per unit of risk. Walmart is currently generating about 0.22 per unit of volatility. If you would invest  88,542  in Walmart on September 28, 2024 and sell it today you would earn a total of  98,288  from holding Walmart or generate 111.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.63%
Values	Daily Returns

Western Digital  vs.  Walmart

Western Digital

Risk-Adjusted Performance

0 of 100

Very 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 latest weak performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Walmart

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Walmart showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Western Digital and Walmart

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

The idea behind Western Digital and Walmart 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.