Correlation Between Disney and GameStop Corp

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

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

Diversification Opportunities for Disney and GameStop Corp

-0.42

Correlation Coefficient

Disney  GameStop Corp

Very good diversification

The 3 months correlation between Disney and GameStop is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and GameStop Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GameStop Corp 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 GameStop Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GameStop Corp has no effect on the direction of Disney i.e., Disney and GameStop Corp go up and down completely randomly.

Pair Corralation between Disney and GameStop Corp

Considering the 90-day investment horizon Walt Disney is expected to generate 0.37 times more return on investment than GameStop Corp. However, Walt Disney is 2.67 times less risky than GameStop Corp. It trades about 0.04 of its potential returns per unit of risk. GameStop Corp is currently generating about -0.03 per unit of risk. If you would invest  9,929  in Walt Disney on January 24, 2024 and sell it today you would earn a total of  1,442  from holding Walt Disney or generate 14.52% return on investment over 90 days.

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

Walt Disney  vs.  GameStop Corp

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.

GameStop Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GameStop Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's primary indicators remain rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Disney and GameStop Corp

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

The idea behind Walt Disney and GameStop Corp 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.