Correlation Between Disney and New Era

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

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

Diversification Opportunities for Disney and New Era

-0.43

Correlation Coefficient

Disney  New Era

Very good diversification

The 3 months correlation between Disney and New is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and New Era Helium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Era Helium 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 New Era. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Era Helium has no effect on the direction of Disney i.e., Disney and New Era go up and down completely randomly.

Pair Corralation between Disney and New Era

Considering the 90-day investment horizon Walt Disney is expected to generate 0.55 times more return on investment than New Era. However, Walt Disney is 1.81 times less risky than New Era. It trades about 0.04 of its potential returns per unit of risk. New Era Helium is currently generating about -0.07 per unit of risk. If you would invest  8,612  in Walt Disney on September 19, 2024 and sell it today you would earn a total of  2,523  from holding Walt Disney or generate 29.3% 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.  New Era Helium

Walt Disney

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 15 (%) 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.

New Era Helium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New Era Helium has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Disney and New Era

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

The idea behind Walt Disney and New Era Helium 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.