Correlation Between Western Digital and Transocean

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

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

Diversification Opportunities for Western Digital and Transocean

0.29

Correlation Coefficient

Western Digital  Transocean

Modest diversification

The 3 months correlation between Western and Transocean is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital and Transocean in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transocean 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 Transocean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transocean has no effect on the direction of Western Digital i.e., Western Digital and Transocean go up and down completely randomly.

Pair Corralation between Western Digital and Transocean

Considering the 90-day investment horizon Western Digital is expected to generate 0.83 times more return on investment than Transocean. However, Western Digital is 1.21 times less risky than Transocean. It trades about -0.03 of its potential returns per unit of risk. Transocean is currently generating about -0.11 per unit of risk. If you would invest  6,600  in Western Digital on September 25, 2024 and sell it today you would lose (425.00) from holding Western Digital or give up 6.44% of portfolio value over 90 days.

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

Western Digital  vs.  Transocean

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 rather sound fundamental indicators, Western Digital is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Transocean

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transocean has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Western Digital and Transocean

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

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