Correlation Between Western Digital and Eltek

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

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

Diversification Opportunities for Western Digital and Eltek

-0.7

Correlation Coefficient

Western Digital  Eltek

Excellent diversification

The 3 months correlation between Western and Eltek is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital and Eltek in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eltek 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 Eltek. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eltek has no effect on the direction of Western Digital i.e., Western Digital and Eltek go up and down completely randomly.

Pair Corralation between Western Digital and Eltek

Considering the 90-day investment horizon Western Digital is expected to under-perform the Eltek. But the stock apears to be less risky and, when comparing its historical volatility, Western Digital is 1.1 times less risky than Eltek. The stock trades about -0.02 of its potential returns per unit of risk. The Eltek is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,076  in Eltek on January 31, 2024 and sell it today you would lose (9.00) from holding Eltek or give up 0.84% of portfolio value over 90 days.

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

Western Digital  vs.  Eltek

Western Digital

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Western Digital are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting fundamental indicators, Western Digital exhibited solid returns over the last few months and may actually be approaching a breakup point.

Eltek

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eltek has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in May 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Western Digital and Eltek

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

The idea behind Western Digital and Eltek 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.