Correlation Between Disney and Nektar Therapeutics

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

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

Diversification Opportunities for Disney and Nektar Therapeutics

-0.86

Correlation Coefficient

Disney  Nektar Therapeutics

Pay attention - limited upside

The 3 months correlation between Disney and Nektar is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Nektar Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nektar Therapeutics 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 Nektar Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nektar Therapeutics has no effect on the direction of Disney i.e., Disney and Nektar Therapeutics go up and down completely randomly.

Pair Corralation between Disney and Nektar Therapeutics

Considering the 90-day investment horizon Disney is expected to generate 5.04 times less return on investment than Nektar Therapeutics. But when comparing it to its historical volatility, Walt Disney is 3.58 times less risky than Nektar Therapeutics. It trades about 0.06 of its potential returns per unit of risk. Nektar Therapeutics is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  45.00  in Nektar Therapeutics on October 8, 2024 and sell it today you would earn a total of  65.00  from holding Nektar Therapeutics or generate 144.44% return on investment over 90 days.

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

Walt Disney  vs.  Nektar Therapeutics

Walt Disney

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 17 (%) 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.

Nektar Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nektar Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Disney and Nektar Therapeutics

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

The idea behind Walt Disney and Nektar Therapeutics 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.