Correlation Between Disney and Megacable Holdings

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

Diversification Opportunities for Disney and Megacable Holdings

-0.74

Correlation Coefficient

Disney  Megacable Holdings

Pay attention - limited upside

The 3 months correlation between Disney and Megacable is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding The Walt Disney and Megacable Holdings S in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Megacable Holdings 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 Megacable Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Megacable Holdings has no effect on the direction of Disney i.e., Disney and Megacable Holdings go up and down completely randomly.

Pair Corralation between Disney and Megacable Holdings

Assuming the 90 days trading horizon The Walt Disney is expected to generate 0.98 times more return on investment than Megacable Holdings. However, The Walt Disney is 1.02 times less risky than Megacable Holdings. It trades about 0.25 of its potential returns per unit of risk. Megacable Holdings S is currently generating about -0.1 per unit of risk. If you would invest  177,410  in The Walt Disney on September 15, 2024 and sell it today you would earn a total of  50,990  from holding The Walt Disney or generate 28.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

The Walt Disney  vs.  Megacable Holdings S

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 unfluctuating basic indicators, Disney showed solid returns over the last few months and may actually be approaching a breakup point.

Megacable Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Megacable Holdings S has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Disney and Megacable Holdings

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

The idea behind The Walt Disney and Megacable Holdings S 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.