Correlation Between Disney and International Equity

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

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

Diversification Opportunities for Disney and International Equity

-0.74

Correlation Coefficient

Disney  International Equity

Pay attention - limited upside

The 3 months correlation between Disney and International is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and International Equity Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Equity 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 International Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Equity has no effect on the direction of Disney i.e., Disney and International Equity go up and down completely randomly.

Pair Corralation between Disney and International Equity

Considering the 90-day investment horizon Walt Disney is expected to generate 1.76 times more return on investment than International Equity. However, Disney is 1.76 times more volatile than International Equity Index. It trades about 0.28 of its potential returns per unit of risk. International Equity Index is currently generating about -0.03 per unit of risk. If you would invest  8,930  in Walt Disney on September 12, 2024 and sell it today you would earn a total of  2,543  from holding Walt Disney or generate 28.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Walt Disney  vs.  International Equity Index

Walt Disney

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak forward indicators, Disney unveiled solid returns over the last few months and may actually be approaching a breakup point.

International Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Equity Index has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, International Equity 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 International Equity

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

The idea behind Walt Disney and International Equity Index 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.