Correlation Between Disney and American Funds

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

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

Diversification Opportunities for Disney and American Funds

0.88

Correlation Coefficient

Disney  American Funds

Very poor diversification

The 3 months correlation between Disney and American is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and American Funds Developing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Developing 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 Walt Disney are associated (or correlated) with American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Developing has no effect on the direction of Disney i.e., Disney and American Funds go up and down completely randomly.

Pair Corralation between Disney and American Funds

Considering the 90-day investment horizon Walt Disney is expected to generate 2.01 times more return on investment than American Funds. However, Disney is 2.01 times more volatile than American Funds Developing. It trades about -0.11 of its potential returns per unit of risk. American Funds Developing is currently generating about -0.33 per unit of risk. If you would invest  11,646  in Walt Disney on January 20, 2024 and sell it today you would lose (385.00) from holding Walt Disney or give up 3.31% of portfolio value over 90 days.

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

Walt Disney  vs.  American Funds Developing

Walt Disney

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, Disney unveiled solid returns over the last few months and may actually be approaching a breakup point.

American Funds Developing

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds Developing are ranked lower than 6 (%) 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.

Pair Trading with Disney and American Funds

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

The idea behind Walt Disney and American Funds Developing 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.