Correlation Between Western Digital and WPP PLC

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

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

Diversification Opportunities for Western Digital and WPP PLC

0.67

Correlation Coefficient

Western Digital  WPP PLC

Poor diversification

The 3 months correlation between Western and WPP is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital and WPP PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WPP PLC ADR 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 WPP PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WPP PLC ADR has no effect on the direction of Western Digital i.e., Western Digital and WPP PLC go up and down completely randomly.

Pair Corralation between Western Digital and WPP PLC

Considering the 90-day investment horizon Western Digital is expected to generate 1.52 times less return on investment than WPP PLC. In addition to that, Western Digital is 1.55 times more volatile than WPP PLC ADR. It trades about 0.07 of its total potential returns per unit of risk. WPP PLC ADR is currently generating about 0.17 per unit of volatility. If you would invest  4,829  in WPP PLC ADR on September 14, 2024 and sell it today you would earn a total of  771.00  from holding WPP PLC ADR or generate 15.97% return on investment over 90 days.

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

Western Digital  vs.  WPP PLC ADR

Western Digital

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Western Digital are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent fundamental indicators, Western Digital may actually be approaching a critical reversion point that can send shares even higher in January 2025.

WPP PLC ADR

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WPP PLC ADR are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, WPP PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Western Digital and WPP PLC

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

The idea behind Western Digital and WPP PLC ADR 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 Stocks Directory module to find actively traded stocks across global markets.