Correlation Between Disney and Defence Therapeutics

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

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

Diversification Opportunities for Disney and Defence Therapeutics

-0.42

Correlation Coefficient

Disney  Defence Therapeutics

Very good diversification

The 3 months correlation between Disney and Defence is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Defence Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Defence Therapeutics 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 Walt Disney are associated (or correlated) with Defence Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Defence Therapeutics has no effect on the direction of Disney i.e., Disney and Defence Therapeutics go up and down completely randomly.

Pair Corralation between Disney and Defence Therapeutics

Considering the 90-day investment horizon Walt Disney is expected to generate 0.33 times more return on investment than Defence Therapeutics. However, Walt Disney is 2.99 times less risky than Defence Therapeutics. It trades about 0.06 of its potential returns per unit of risk. Defence Therapeutics is currently generating about -0.07 per unit of risk. If you would invest  8,521  in Walt Disney on September 12, 2024 and sell it today you would earn a total of  2,962  from holding Walt Disney or generate 34.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.7%
Values	Daily Returns

Walt Disney  vs.  Defence Therapeutics

Walt Disney

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak forward indicators, Disney unveiled solid returns over the last few months and may actually be approaching a breakup point.

Defence Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Defence Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Disney and Defence Therapeutics

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

The idea behind Walt Disney and Defence Therapeutics 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.