Correlation Between Disney and Southwestern Energy

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

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

Diversification Opportunities for Disney and Southwestern Energy

0.85

Correlation Coefficient

Disney  Southwestern Energy

Very poor diversification

The 3 months correlation between Disney and Southwestern is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Southwestern Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwestern Energy 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 Southwestern Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southwestern Energy has no effect on the direction of Disney i.e., Disney and Southwestern Energy go up and down completely randomly.

Pair Corralation between Disney and Southwestern Energy

Considering the 90-day investment horizon Walt Disney is expected to under-perform the Southwestern Energy. In addition to that, Disney is 1.46 times more volatile than Southwestern Energy. It trades about -0.12 of its total potential returns per unit of risk. Southwestern Energy is currently generating about -0.02 per unit of volatility. If you would invest  732.00  in Southwestern Energy on January 20, 2024 and sell it today you would lose (4.00) from holding Southwestern Energy or give up 0.55% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

Walt Disney  vs.  Southwestern Energy

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.

Southwestern Energy

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Southwestern Energy are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Southwestern Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Disney and Southwestern Energy

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

The idea behind Walt Disney and Southwestern Energy 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..