Correlation Between Disney and Vanguard Small-cap

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

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

Diversification Opportunities for Disney and Vanguard Small-cap

0.82

Correlation Coefficient

Disney  Vanguard Small-cap

Very poor diversification

The 3 months correlation between Disney and Vanguard is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Vanguard Small Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small Cap 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 Vanguard Small-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Small Cap has no effect on the direction of Disney i.e., Disney and Vanguard Small-cap go up and down completely randomly.

Pair Corralation between Disney and Vanguard Small-cap

Considering the 90-day investment horizon Disney is expected to generate 1.66 times less return on investment than Vanguard Small-cap. In addition to that, Disney is 1.29 times more volatile than Vanguard Small Cap Growth. It trades about 0.01 of its total potential returns per unit of risk. Vanguard Small Cap Growth is currently generating about 0.02 per unit of volatility. If you would invest  7,584  in Vanguard Small Cap Growth on January 25, 2024 and sell it today you would earn a total of  1,021  from holding Vanguard Small Cap Growth or generate 13.46% return on investment over 90 days.

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

Walt Disney  vs.  Vanguard Small Cap Growth

Walt Disney

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 12 (%) 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.

Vanguard Small Cap

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Growth are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Small-cap 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 Vanguard Small-cap

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

The idea behind Walt Disney and Vanguard Small Cap Growth 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.