Correlation Between Microsoft and WESTERN DIGITAL
Can any of the company-specific risk be diversified away by investing in both Microsoft and WESTERN DIGITAL 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 Microsoft and WESTERN DIGITAL into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and WESTERN DIGITAL, you can compare the effects of market volatilities on Microsoft and WESTERN DIGITAL 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 Microsoft with a short position of WESTERN DIGITAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and WESTERN DIGITAL.
Diversification Opportunities for Microsoft and WESTERN DIGITAL
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Microsoft and WESTERN is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and WESTERN DIGITAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WESTERN DIGITAL and Microsoft 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 Microsoft are associated (or correlated) with WESTERN DIGITAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WESTERN DIGITAL has no effect on the direction of Microsoft i.e., Microsoft and WESTERN DIGITAL go up and down completely randomly.
Pair Corralation between Microsoft and WESTERN DIGITAL
Assuming the 90 days trading horizon Microsoft is expected to generate 2.29 times less return on investment than WESTERN DIGITAL. But when comparing it to its historical volatility, Microsoft is 1.64 times less risky than WESTERN DIGITAL. It trades about 0.07 of its potential returns per unit of risk. WESTERN DIGITAL is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 5,926 in WESTERN DIGITAL on September 2, 2024 and sell it today you would earn a total of 831.00 from holding WESTERN DIGITAL or generate 14.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. WESTERN DIGITAL
Performance |
| Timeline |
| Microsoft |
| WESTERN DIGITAL |
Microsoft and WESTERN DIGITAL Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and WESTERN DIGITAL
The main advantage of trading using opposite Microsoft and WESTERN DIGITAL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, WESTERN DIGITAL 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 WESTERN DIGITAL will offset losses from the drop in WESTERN DIGITAL's long position.| Microsoft vs. Broadcom | Microsoft vs. COPLAND ROAD CAPITAL | Microsoft vs. Alfa Financial Software | Microsoft vs. AXWAY SOFTWARE EO |
| WESTERN DIGITAL vs. Penn National Gaming | WESTERN DIGITAL vs. Tsingtao Brewery | WESTERN DIGITAL vs. The Boston Beer | WESTERN DIGITAL vs. Boyd Gaming |
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.
Other Complementary Tools
| Headlines Timeline Stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity | |
| Share Portfolio Track or share privately all of your investments from the convenience of any device | |
| Efficient Frontier Plot and analyze your portfolio and positions against risk-return landscape of the market. | |
| Money Flow Index Determine momentum by analyzing Money Flow Index and other technical indicators | |
| Portfolio Volatility Check portfolio volatility and analyze historical return density to properly model market risk |