Correlation Between Ford and Disney

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

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

Diversification Opportunities for Ford and Disney

0.91

Correlation Coefficient

Ford  Disney

Almost no diversification

The 3 months correlation between Ford and Disney is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Walt Disney in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walt Disney and Ford 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 Ford Motor are associated (or correlated) with Disney. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walt Disney has no effect on the direction of Ford i.e., Ford and Disney go up and down completely randomly.

Pair Corralation between Ford and Disney

Taking into account the 90-day investment horizon Ford is expected to generate 13.61 times less return on investment than Disney. In addition to that, Ford is 1.27 times more volatile than Walt Disney. It trades about 0.01 of its total potential returns per unit of risk. Walt Disney is currently generating about 0.1 per unit of volatility. If you would invest  8,508  in Walt Disney on January 23, 2024 and sell it today you would earn a total of  2,691  from holding Walt Disney or generate 31.63% return on investment over 90 days.

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

Ford Motor  vs.  Walt Disney

Ford Motor

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, Ford may actually be approaching a critical reversion point that can send shares even higher in May 2024.

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.

Pair Trading with Ford and Disney

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

The idea behind Ford Motor and Walt Disney 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.