Correlation Between Disney and Berkshire Hathaway

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

Diversification Opportunities for Disney and Berkshire Hathaway

0.67

Correlation Coefficient

Disney  Berkshire Hathaway

Poor diversification

The 3 months correlation between Disney and Berkshire is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding The Walt Disney and Berkshire Hathaway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Berkshire Hathaway 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 Berkshire Hathaway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Berkshire Hathaway has no effect on the direction of Disney i.e., Disney and Berkshire Hathaway go up and down completely randomly.

Pair Corralation between Disney and Berkshire Hathaway

Assuming the 90 days trading horizon The Walt Disney is expected to generate 1.09 times more return on investment than Berkshire Hathaway. However, Disney is 1.09 times more volatile than Berkshire Hathaway. It trades about -0.09 of its potential returns per unit of risk. Berkshire Hathaway is currently generating about -0.14 per unit of risk. If you would invest  230,976  in The Walt Disney on October 10, 2024 and sell it today you would lose (4,007) from holding The Walt Disney or give up 1.73% of portfolio value over 90 days.

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

The Walt Disney  vs.  Berkshire Hathaway

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.

Berkshire Hathaway

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Berkshire Hathaway are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Berkshire Hathaway is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Disney and Berkshire Hathaway

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

The idea behind The Walt Disney and Berkshire Hathaway 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.