Correlation Between Disney and US Bancorp

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

Diversification Opportunities for Disney and US Bancorp

0.2

Correlation Coefficient

Disney  US Bancorp

Modest diversification

The 3 months correlation between Disney and USB is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding The Walt Disney and US Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Bancorp 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 US Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp has no effect on the direction of Disney i.e., Disney and US Bancorp go up and down completely randomly.

Pair Corralation between Disney and US Bancorp

Assuming the 90 days trading horizon The Walt Disney is expected to generate 1.21 times more return on investment than US Bancorp. However, Disney is 1.21 times more volatile than US Bancorp. It trades about -0.04 of its potential returns per unit of risk. US Bancorp is currently generating about -0.07 per unit of risk. If you would invest  234,514  in The Walt Disney on December 5, 2024 and sell it today you would lose (8,514) from holding The Walt Disney or give up 3.63% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

The Walt Disney  vs.  US Bancorp

Walt Disney

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Walt Disney has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Disney is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

US Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days US Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental drivers, US Bancorp 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 US Bancorp

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

The idea behind The Walt Disney and US Bancorp 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.