Correlation Between Disney and Livewire Ergogenics

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

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

Diversification Opportunities for Disney and Livewire Ergogenics

0.4

Correlation Coefficient

Disney  Livewire Ergogenics

Very weak diversification

The 3 months correlation between Disney and Livewire is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Livewire Ergogenics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Livewire Ergogenics 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 Livewire Ergogenics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Livewire Ergogenics has no effect on the direction of Disney i.e., Disney and Livewire Ergogenics go up and down completely randomly.

Pair Corralation between Disney and Livewire Ergogenics

Considering the 90-day investment horizon Walt Disney is expected to under-perform the Livewire Ergogenics. But the stock apears to be less risky and, when comparing its historical volatility, Walt Disney is 12.21 times less risky than Livewire Ergogenics. The stock trades about -0.11 of its potential returns per unit of risk. The Livewire Ergogenics is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  0.07  in Livewire Ergogenics on December 29, 2024 and sell it today you would lose (0.02) from holding Livewire Ergogenics or give up 28.57% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Walt Disney  vs.  Livewire Ergogenics

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.

Livewire Ergogenics

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Livewire Ergogenics are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Livewire Ergogenics showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Disney and Livewire Ergogenics

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

The idea behind Walt Disney and Livewire Ergogenics 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.