Correlation Between Exxon and Disney

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

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

Diversification Opportunities for Exxon and Disney

0.79

Correlation Coefficient

Exxon  Disney

Poor diversification

The 3 months correlation between Exxon and Disney is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Walt Disney in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walt Disney and Exxon 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 Exxon Mobil Corp 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 Exxon i.e., Exxon and Disney go up and down completely randomly.

Pair Corralation between Exxon and Disney

Considering the 90-day investment horizon Exxon is expected to generate 1.24 times less return on investment than Disney. But when comparing it to its historical volatility, Exxon Mobil Corp is 1.19 times less risky than Disney. It trades about 0.04 of its potential returns per unit of risk. Walt Disney is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  9,822  in Walt Disney on January 25, 2024 and sell it today you would earn a total of  1,549  from holding Walt Disney or generate 15.77% return on investment over 90 days.

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

Exxon Mobil Corp  vs.  Walt Disney

Exxon Mobil Corp

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Exxon displayed solid returns over the last few months and may actually be approaching a breakup point.

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 Exxon and Disney

The main advantage of trading using opposite Exxon and Disney positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon 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 Exxon Mobil Corp 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.