Correlation Between Exxon and Disney

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

By analyzing existing cross correlation between Exxon Mobil Corp and Walt Disney, you can compare the effects of market volatilities on Exxon and Disney 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 Exxon with a short position of Disney. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon and Disney.

Diversification Opportunities for Exxon and Disney

0.64

Correlation Coefficient

Exxon  Disney

Poor diversification

The 3 months correlation between Exxon and Disney is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Walt Disney in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walt Disney and Exxon 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 Exxon Mobil Corp are associated (or correlated) with Disney. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walt Disney has no effect on the direction of Exxon i.e., Exxon and Disney go up and down completely randomly.

Pair Corralation between Exxon and Disney

Considering the 90-day investment horizon Exxon Mobil Corp is expected to generate 0.6 times more return on investment than Disney. However, Exxon Mobil Corp is 1.68 times less risky than Disney. It trades about 0.19 of its potential returns per unit of risk. Walt Disney is currently generating about -0.04 per unit of risk. If you would invest  10,301  in Exxon Mobil Corp on February 8, 2024 and sell it today you would earn a total of  1,316  from holding Exxon Mobil Corp or generate 12.78% return on investment over 90 days.

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

Exxon Mobil Corp  vs.  Walt Disney

Exxon Mobil Corp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Exxon may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Walt Disney

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Walt Disney has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward indicators, Disney is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Exxon and Disney

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

The idea behind Exxon Mobil Corp and Walt Disney 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.