Correlation Between Western Digital and Sunlands Technology

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

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

Diversification Opportunities for Western Digital and Sunlands Technology

-0.3

Correlation Coefficient

Western Digital  Sunlands Technology

Very good diversification

The 3 months correlation between Western and Sunlands is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital and Sunlands Technology Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunlands Technology 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 Sunlands Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunlands Technology has no effect on the direction of Western Digital i.e., Western Digital and Sunlands Technology go up and down completely randomly.

Pair Corralation between Western Digital and Sunlands Technology

Considering the 90-day investment horizon Western Digital is expected to generate 0.56 times more return on investment than Sunlands Technology. However, Western Digital is 1.8 times less risky than Sunlands Technology. It trades about 0.2 of its potential returns per unit of risk. Sunlands Technology Group is currently generating about 0.03 per unit of risk. If you would invest  5,413  in Western Digital on February 19, 2024 and sell it today you would earn a total of  1,797  from holding Western Digital or generate 33.2% return on investment over 90 days.

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

Western Digital  vs.  Sunlands Technology Group

Western Digital

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Western Digital are ranked lower than 15 (%) 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.

Sunlands Technology

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sunlands Technology Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Sunlands Technology may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Western Digital and Sunlands Technology

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

The idea behind Western Digital and Sunlands Technology Group 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.