Correlation Between Western Digital and Optical Cable

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

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

Diversification Opportunities for Western Digital and Optical Cable

0.67

Correlation Coefficient

Western Digital  Optical Cable

Poor diversification

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

Pair Corralation between Western Digital and Optical Cable

Considering the 90-day investment horizon Western Digital is expected to generate 1.03 times less return on investment than Optical Cable. But when comparing it to its historical volatility, Western Digital is 3.35 times less risky than Optical Cable. It trades about 0.43 of its potential returns per unit of risk. Optical Cable is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  310.00  in Optical Cable on May 5, 2025 and sell it today you would earn a total of  164.00  from holding Optical Cable or generate 52.9% 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.  Optical Cable

Western Digital

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Western Digital are ranked lower than 33 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Western Digital exhibited solid returns over the last few months and may actually be approaching a breakup point.

Optical Cable

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Optical Cable are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental indicators, Optical Cable exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Western Digital and Optical Cable

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

The idea behind Western Digital and Optical Cable 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.