Correlation Between Disney and GE Aerospace

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

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

Diversification Opportunities for Disney and GE Aerospace

-0.21

Correlation Coefficient

Disney  GE Aerospace

Very good diversification

The 3 months correlation between Disney and GE Aerospace is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and GE Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GE Aerospace 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 GE Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GE Aerospace has no effect on the direction of Disney i.e., Disney and GE Aerospace go up and down completely randomly.

Pair Corralation between Disney and GE Aerospace

Considering the 90-day investment horizon Walt Disney is expected to under-perform the GE Aerospace. But the stock apears to be less risky and, when comparing its historical volatility, Walt Disney is 1.88 times less risky than GE Aerospace. The stock trades about -0.07 of its potential returns per unit of risk. The GE Aerospace is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  18,186  in GE Aerospace on November 28, 2024 and sell it today you would earn a total of  1,982  from holding GE Aerospace or generate 10.9% return on investment over 90 days.

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

Walt Disney  vs.  GE Aerospace

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.

GE Aerospace

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GE Aerospace are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal technical and fundamental indicators, GE Aerospace may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Disney and GE Aerospace

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

The idea behind Walt Disney and GE Aerospace 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.