Correlation Between Disney and Holiday Island

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

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

Diversification Opportunities for Disney and Holiday Island

0.28

Correlation Coefficient

Disney  Holiday Island

Modest diversification

The 3 months correlation between Disney and Holiday is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Holiday Island Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Holiday Island Holdings 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 Holiday Island. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Holiday Island Holdings has no effect on the direction of Disney i.e., Disney and Holiday Island go up and down completely randomly.

Pair Corralation between Disney and Holiday Island

Considering the 90-day investment horizon Walt Disney is expected to generate 0.06 times more return on investment than Holiday Island. However, Walt Disney is 17.33 times less risky than Holiday Island. It trades about -0.03 of its potential returns per unit of risk. Holiday Island Holdings is currently generating about -0.01 per unit of risk. If you would invest  11,664  in Walt Disney on December 1, 2024 and sell it today you would lose (284.00) from holding Walt Disney or give up 2.43% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Walt Disney  vs.  Holiday Island Holdings

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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Holiday Island Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Holiday Island Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Disney and Holiday Island

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

The idea behind Walt Disney and Holiday Island Holdings 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.