Correlation Between Western Digital and American Airlines
Can any of the company-specific risk be diversified away by investing in both Western Digital and American Airlines 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 American Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Western Digital and American Airlines Group, you can compare the effects of market volatilities on Western Digital and American Airlines 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 American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Digital and American Airlines.
Diversification Opportunities for Western Digital and American Airlines
0.45 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Western and American is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines 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 American Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Airlines has no effect on the direction of Western Digital i.e., Western Digital and American Airlines go up and down completely randomly.
Pair Corralation between Western Digital and American Airlines
Considering the 90-day investment horizon Western Digital is expected to generate 1.2 times more return on investment than American Airlines. However, Western Digital is 1.2 times more volatile than American Airlines Group. It trades about 0.21 of its potential returns per unit of risk. American Airlines Group is currently generating about 0.18 per unit of risk. If you would invest 6,531 in Western Digital on September 1, 2024 and sell it today you would earn a total of 768.00 from holding Western Digital or generate 11.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Western Digital vs. American Airlines Group
Performance |
| Timeline |
| Western Digital |
| American Airlines |
Western Digital and American Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Digital and American Airlines
The main advantage of trading using opposite Western Digital and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Digital position performs unexpectedly, American Airlines 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 American Airlines will offset losses from the drop in American Airlines' long position.| Western Digital vs. Rigetti Computing | Western Digital vs. D Wave Quantum | Western Digital vs. IONQ Inc | Western Digital vs. Desktop Metal |
| American Airlines vs. Canadian Pacific Railway | American Airlines vs. Volaris | American Airlines vs. Werner Enterprises | American Airlines vs. Canadian National Railway |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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