Correlation Between Disney and Omnicom

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

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

Diversification Opportunities for Disney and Omnicom

0.57

Correlation Coefficient

Disney  Omnicom

Very weak diversification

The 3 months correlation between Disney and Omnicom is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Omnicom Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Omnicom Group 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 Omnicom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Omnicom Group has no effect on the direction of Disney i.e., Disney and Omnicom go up and down completely randomly.

Pair Corralation between Disney and Omnicom

Considering the 90-day investment horizon Walt Disney is expected to under-perform the Omnicom. In addition to that, Disney is 1.07 times more volatile than Omnicom Group. It trades about -0.11 of its total potential returns per unit of risk. Omnicom Group is currently generating about -0.06 per unit of volatility. If you would invest  9,426  in Omnicom Group on January 20, 2024 and sell it today you would lose (164.00) from holding Omnicom Group or give up 1.74% of portfolio value over 90 days.

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

Walt Disney  vs.  Omnicom Group

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.

Omnicom Group

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Omnicom Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, Omnicom is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Disney and Omnicom

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

The idea behind Walt Disney and Omnicom Group 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.