Correlation Between Barings BDC and Western Digital

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

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

Diversification Opportunities for Barings BDC and Western Digital

0.51

Correlation Coefficient

Barings BDC  Western Digital

Very weak diversification

The 3 months correlation between Barings and Western is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Barings BDC and Western Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Digital and Barings BDC 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 Barings BDC 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 Barings BDC i.e., Barings BDC and Western Digital go up and down completely randomly.

Pair Corralation between Barings BDC and Western Digital

Given the investment horizon of 90 days Barings BDC is expected to under-perform the Western Digital. But the stock apears to be less risky and, when comparing its historical volatility, Barings BDC is 2.26 times less risky than Western Digital. The stock trades about -0.02 of its potential returns per unit of risk. The Western Digital is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  5,746  in Western Digital on January 29, 2024 and sell it today you would earn a total of  1,390  from holding Western Digital or generate 24.19% return on investment over 90 days.

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

Barings BDC  vs.  Western Digital

Barings BDC

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Barings BDC are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Barings BDC is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Western Digital

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with Barings BDC and Western Digital

The main advantage of trading using opposite Barings BDC and Western Digital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Barings BDC 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.

The idea behind Barings BDC and Western Digital 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.