Correlation Between Disney and Megacable Holdings

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

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

Diversification Opportunities for Disney and Megacable Holdings

0.52

Correlation Coefficient

Disney  Megacable Holdings

Very weak diversification

The 3 months correlation between Disney and Megacable is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding The Walt Disney and Megacable Holdings S in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Megacable Holdings and Disney 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 The Walt Disney are associated (or correlated) with Megacable Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Megacable Holdings has no effect on the direction of Disney i.e., Disney and Megacable Holdings go up and down completely randomly.

Pair Corralation between Disney and Megacable Holdings

Assuming the 90 days trading horizon The Walt Disney is expected to under-perform the Megacable Holdings. But the stock apears to be less risky and, when comparing its historical volatility, The Walt Disney is 1.71 times less risky than Megacable Holdings. The stock trades about -0.02 of its potential returns per unit of risk. The Megacable Holdings S is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4,970  in Megacable Holdings S on February 4, 2024 and sell it today you would earn a total of  74.00  from holding Megacable Holdings S or generate 1.49% return on investment over 90 days.

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

The Walt Disney  vs.  Megacable Holdings S

Walt Disney

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Walt Disney are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Disney showed solid returns over the last few months and may actually be approaching a breakup point.

Megacable Holdings

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Megacable Holdings S are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Megacable Holdings displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Disney and Megacable Holdings

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

The idea behind The Walt Disney and Megacable Holdings S 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.