Correlation Between Disney and Hang Seng

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

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

Diversification Opportunities for Disney and Hang Seng

-0.45

Correlation Coefficient

Disney  Hang Seng

Very good diversification

The 3 months correlation between Disney and Hang is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Hang Seng Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hang Seng Bank 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 Hang Seng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hang Seng Bank has no effect on the direction of Disney i.e., Disney and Hang Seng go up and down completely randomly.

Pair Corralation between Disney and Hang Seng

Considering the 90-day investment horizon Walt Disney is expected to under-perform the Hang Seng. But the stock apears to be less risky and, when comparing its historical volatility, Walt Disney is 1.28 times less risky than Hang Seng. The stock trades about -0.13 of its potential returns per unit of risk. The Hang Seng Bank is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,199  in Hang Seng Bank on December 22, 2024 and sell it today you would earn a total of  161.00  from holding Hang Seng Bank or generate 13.43% return on investment over 90 days.

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

Walt Disney  vs.  Hang Seng Bank

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 uncertain 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.

Hang Seng Bank

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hang Seng Bank are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Hang Seng showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Disney and Hang Seng

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

The idea behind Walt Disney and Hang Seng Bank 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.