Correlation Between British Amer and Disney

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

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

Diversification Opportunities for British Amer and Disney

0.53

Correlation Coefficient

British Amer  Disney

Very weak diversification

The 3 months correlation between British and Disney is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Walt Disney in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walt Disney and British Amer 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 British American Tobacco 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 British Amer i.e., British Amer and Disney go up and down completely randomly.

Pair Corralation between British Amer and Disney

Considering the 90-day investment horizon British American Tobacco is expected to generate 0.77 times more return on investment than Disney. However, British American Tobacco is 1.29 times less risky than Disney. It trades about -0.1 of its potential returns per unit of risk. Walt Disney is currently generating about -0.18 per unit of risk. If you would invest  3,005  in British American Tobacco on January 24, 2024 and sell it today you would lose (64.00) from holding British American Tobacco or give up 2.13% of portfolio value over 90 days.

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

British American Tobacco  vs.  Walt Disney

British American Tobacco

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, British Amer is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Walt Disney

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak forward indicators, Disney unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with British Amer and Disney

The main advantage of trading using opposite British Amer and Disney positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British Amer 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 British American Tobacco 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.

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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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.