Correlation Between Western Digital and Procter Gamble

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

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

Diversification Opportunities for Western Digital and Procter Gamble

0.07

Correlation Coefficient

Western Digital  Procter Gamble

Significant diversification

The 3 months correlation between Western and Procter is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital and Procter Gamble in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Procter Gamble 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 Procter Gamble. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Procter Gamble has no effect on the direction of Western Digital i.e., Western Digital and Procter Gamble go up and down completely randomly.

Pair Corralation between Western Digital and Procter Gamble

Considering the 90-day investment horizon Western Digital is expected to generate 2.36 times more return on investment than Procter Gamble. However, Western Digital is 2.36 times more volatile than Procter Gamble. It trades about 0.11 of its potential returns per unit of risk. Procter Gamble is currently generating about 0.06 per unit of risk. If you would invest  6,306  in Western Digital on September 1, 2024 and sell it today you would earn a total of  993.00  from holding Western Digital or generate 15.75% return on investment over 90 days.

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

Western Digital  vs.  Procter Gamble

Western Digital

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Digital are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent fundamental indicators, Western Digital exhibited solid returns over the last few months and may actually be approaching a breakup point.

Procter Gamble

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Procter Gamble are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Procter Gamble is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Western Digital and Procter Gamble

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

The idea behind Western Digital and Procter Gamble 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.