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 Exchange Traded, 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

0.89

Correlation Coefficient

Disney  First Trust

Very poor diversification

The 3 months correlation between Disney and First is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and First Trust Exchange Traded in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Exchange 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 Exchange 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 Disney is expected to generate 2.25 times less return on investment than First Trust. In addition to that, Disney is 4.15 times more volatile than First Trust Exchange Traded. It trades about 0.02 of its total potential returns per unit of risk. First Trust Exchange Traded is currently generating about 0.14 per unit of volatility. If you would invest  2,904  in First Trust Exchange Traded on September 16, 2024 and sell it today you would earn a total of  840.00  from holding First Trust Exchange Traded or generate 28.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	96.23%
Values	Daily Returns

Walt Disney  vs.  First Trust Exchange Traded

Walt Disney

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 18 (%) 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.

First Trust Exchange

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Exchange Traded are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, First Trust is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

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 Exchange Traded 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.