Correlation Between Disney and Fastbase

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

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

Diversification Opportunities for Disney and Fastbase

-0.57

Correlation Coefficient

Disney  Fastbase

Excellent diversification

The 3 months correlation between Disney and Fastbase is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Fastbase in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fastbase 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 Fastbase. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fastbase has no effect on the direction of Disney i.e., Disney and Fastbase go up and down completely randomly.

Pair Corralation between Disney and Fastbase

Considering the 90-day investment horizon Disney is expected to generate 1.85 times less return on investment than Fastbase. But when comparing it to its historical volatility, Walt Disney is 10.68 times less risky than Fastbase. It trades about 0.19 of its potential returns per unit of risk. Fastbase is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  263.00  in Fastbase on October 26, 2024 and sell it today you would lose (113.00) from holding Fastbase or give up 42.97% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Walt Disney  vs.  Fastbase

Walt Disney

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting forward indicators, Disney unveiled solid returns over the last few months and may actually be approaching a breakup point.

Fastbase

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fastbase are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Fastbase exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Disney and Fastbase

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

The idea behind Walt Disney and Fastbase 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.