Correlation Between Disney and Next PLC

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

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

Diversification Opportunities for Disney and Next PLC

-0.65

Correlation Coefficient

Disney  Next PLC

Excellent diversification

The 3 months correlation between Disney and Next is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Next PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Next PLC ADR 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 Next PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Next PLC ADR has no effect on the direction of Disney i.e., Disney and Next PLC go up and down completely randomly.

Pair Corralation between Disney and Next PLC

Considering the 90-day investment horizon Walt Disney is expected to under-perform the Next PLC. But the stock apears to be less risky and, when comparing its historical volatility, Walt Disney is 1.5 times less risky than Next PLC. The stock trades about -0.26 of its potential returns per unit of risk. The Next PLC ADR is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  6,163  in Next PLC ADR on October 12, 2024 and sell it today you would earn a total of  327.00  from holding Next PLC ADR or generate 5.31% return on investment over 90 days.

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

Walt Disney  vs.  Next PLC ADR

Walt Disney

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting forward indicators, Disney unveiled solid returns over the last few months and may actually be approaching a breakup point.

Next PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Next PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Next PLC 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 Next PLC

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

The idea behind Walt Disney and Next PLC ADR 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.