Correlation Between Western Digital and GameStop Corp

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Can any of the company-specific risk be diversified away by investing in both Western Digital and GameStop Corp 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 GameStop Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Western Digital and GameStop Corp, you can compare the effects of market volatilities on Western Digital and GameStop Corp 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 GameStop Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Digital and GameStop Corp.

Diversification Opportunities for Western Digital and GameStop Corp

-0.13
  Correlation Coefficient

Good diversification

The 3 months correlation between Western and GameStop is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital and GameStop Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GameStop Corp 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 GameStop Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GameStop Corp has no effect on the direction of Western Digital i.e., Western Digital and GameStop Corp go up and down completely randomly.

Pair Corralation between Western Digital and GameStop Corp

Considering the 90-day investment horizon Western Digital is expected to generate 2.42 times less return on investment than GameStop Corp. But when comparing it to its historical volatility, Western Digital is 3.43 times less risky than GameStop Corp. It trades about 0.07 of its potential returns per unit of risk. GameStop Corp is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,354  in GameStop Corp on September 30, 2024 and sell it today you would earn a total of  866.00  from holding GameStop Corp or generate 36.79% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Western Digital  vs.  GameStop Corp

 Performance 
       Timeline  
Western Digital 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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 uncertain performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.
GameStop Corp 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in GameStop Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain primary indicators, GameStop Corp exhibited solid returns over the last few months and may actually be approaching a breakup point.

Western Digital and GameStop Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Western Digital and GameStop Corp

The main advantage of trading using opposite Western Digital and GameStop Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Digital position performs unexpectedly, GameStop Corp 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 GameStop Corp will offset losses from the drop in GameStop Corp's long position.
The idea behind Western Digital and GameStop Corp 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.

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