Correlation Between Disney and BHP

Can any of the company-specific risk be diversified away by investing in both Disney and BHP 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 BHP 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 BHP Group, you can compare the effects of market volatilities on Disney and BHP 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 BHP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Disney and BHP.

Diversification Opportunities for Disney and BHP

-0.31

Correlation Coefficient

Disney  BHP

Very good diversification

The 3 months correlation between Disney and BHP is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding The Walt Disney and BHP Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BHP Group 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 BHP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BHP Group has no effect on the direction of Disney i.e., Disney and BHP go up and down completely randomly.

Pair Corralation between Disney and BHP

If you would invest  113,920  in BHP Group on October 10, 2024 and sell it today you would earn a total of  0.00  from holding BHP Group or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

The Walt Disney  vs.  BHP Group

Walt Disney

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Walt Disney are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Disney showed solid returns over the last few months and may actually be approaching a breakup point.

BHP Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BHP Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, BHP 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 BHP

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

The idea behind The Walt Disney and BHP 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.