Correlation Between Disney and Poplar Forest

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

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

Diversification Opportunities for Disney and Poplar Forest

0.77

Correlation Coefficient

Disney  Poplar Forest

Poor diversification

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

Pair Corralation between Disney and Poplar Forest

Considering the 90-day investment horizon Walt Disney is expected to generate 2.95 times more return on investment than Poplar Forest. However, Disney is 2.95 times more volatile than Poplar Forest Nerstone. It trades about 0.31 of its potential returns per unit of risk. Poplar Forest Nerstone is currently generating about 0.14 per unit of risk. If you would invest  8,913  in Walt Disney on September 3, 2024 and sell it today you would earn a total of  2,834  from holding Walt Disney or generate 31.8% return on investment over 90 days.

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

Walt Disney  vs.  Poplar Forest Nerstone

Walt Disney

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, Disney unveiled solid returns over the last few months and may actually be approaching a breakup point.

Poplar Forest Nerstone

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Poplar Forest Nerstone are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Poplar Forest is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Disney and Poplar Forest

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

The idea behind Walt Disney and Poplar Forest Nerstone 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.