Correlation Between Disney and First Community

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

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

Diversification Opportunities for Disney and First Community

0.37

Correlation Coefficient

Disney  First Community

Weak diversification

The 3 months correlation between Disney and First is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and First Community Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Community Financial 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 First Community. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Community Financial has no effect on the direction of Disney i.e., Disney and First Community go up and down completely randomly.

Pair Corralation between Disney and First Community

Considering the 90-day investment horizon Walt Disney is expected to generate 0.3 times more return on investment than First Community. However, Walt Disney is 3.35 times less risky than First Community. It trades about 0.08 of its potential returns per unit of risk. First Community Financial is currently generating about -0.05 per unit of risk. If you would invest  10,870  in Walt Disney on November 20, 2024 and sell it today you would earn a total of  168.00  from holding Walt Disney or generate 1.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Walt Disney  vs.  First Community Financial

Walt Disney

Risk-Adjusted Performance

Very Weak

Over the last 90 days Walt Disney has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward indicators, Disney is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

First Community Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Community Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unsteady performance, the Stock's technical and fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Disney and First Community

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

The idea behind Walt Disney and First Community Financial 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.