Correlation Between American Funds and Disney

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

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

Diversification Opportunities for American Funds and Disney

0.77

Correlation Coefficient

American Funds  Disney

Poor diversification

The 3 months correlation between American and Disney is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Developing and Walt Disney in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walt Disney and American Funds 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 American Funds Developing 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 American Funds i.e., American Funds and Disney go up and down completely randomly.

Pair Corralation between American Funds and Disney

Assuming the 90 days horizon American Funds Developing is expected to generate 0.48 times more return on investment than Disney. However, American Funds Developing is 2.07 times less risky than Disney. It trades about 0.02 of its potential returns per unit of risk. Walt Disney is currently generating about 0.01 per unit of risk. If you would invest  950.00  in American Funds Developing on January 24, 2024 and sell it today you would earn a total of  62.00  from holding American Funds Developing or generate 6.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

American Funds Developing  vs.  Walt Disney

American Funds Developing

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds Developing are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Walt Disney

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 12 (%) 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 American Funds and Disney

The main advantage of trading using opposite American Funds and Disney positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds 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 American Funds Developing 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.