Correlation Between Disney and First Trust

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

Diversification Opportunities for Disney and First Trust

0.77

Correlation Coefficient

Disney  First Trust

Poor diversification

The 3 months correlation between Disney and First is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and First Trust Dorsey in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Dorsey 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 Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Dorsey has no effect on the direction of Disney i.e., Disney and First Trust go up and down completely randomly.

Pair Corralation between Disney and First Trust

Considering the 90-day investment horizon Walt Disney is expected to under-perform the First Trust. In addition to that, Disney is 1.78 times more volatile than First Trust Dorsey. It trades about -0.11 of its total potential returns per unit of risk. First Trust Dorsey is currently generating about -0.05 per unit of volatility. If you would invest  3,688  in First Trust Dorsey on December 27, 2024 and sell it today you would lose (88.00) from holding First Trust Dorsey or give up 2.39% of portfolio value over 90 days.

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

Walt Disney  vs.  First Trust Dorsey

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 latest conflicting performance, the Stock's forward indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

First Trust Dorsey

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Dorsey has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, First Trust is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Disney and First Trust

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

The idea behind Walt Disney and First Trust Dorsey 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.