Correlation Between Disney and American International

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

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

Diversification Opportunities for Disney and American International

0.55

Correlation Coefficient

Disney  American International

Very weak diversification

The 3 months correlation between Disney and American is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding The Walt Disney and American International Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American International 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 The Walt Disney are associated (or correlated) with American International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American International has no effect on the direction of Disney i.e., Disney and American International go up and down completely randomly.

Pair Corralation between Disney and American International

Assuming the 90 days trading horizon The Walt Disney is expected to generate 1.52 times more return on investment than American International. However, Disney is 1.52 times more volatile than American International Group. It trades about 0.1 of its potential returns per unit of risk. American International Group is currently generating about 0.11 per unit of risk. If you would invest  183,540  in The Walt Disney on September 23, 2024 and sell it today you would earn a total of  40,635  from holding The Walt Disney or generate 22.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.21%
Values	Daily Returns

The Walt Disney  vs.  American International Group

Walt Disney

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Walt Disney are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Disney showed solid returns over the last few months and may actually be approaching a breakup point.

American International

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American International Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, American International 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 American International

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

The idea behind The Walt Disney and American International 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.