Correlation Between Disney and Invesco SP

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

By analyzing existing cross correlation between Walt Disney and Invesco SP 500, you can compare the effects of market volatilities on Disney and Invesco SP 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 Invesco SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Disney and Invesco SP.

Diversification Opportunities for Disney and Invesco SP

0.64

Correlation Coefficient

Disney  Invesco SP

Poor diversification

The 3 months correlation between Disney and Invesco is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Invesco SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP 500 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 Invesco SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco SP 500 has no effect on the direction of Disney i.e., Disney and Invesco SP go up and down completely randomly.

Pair Corralation between Disney and Invesco SP

Considering the 90-day investment horizon Walt Disney is expected to under-perform the Invesco SP. But the stock apears to be less risky and, when comparing its historical volatility, Walt Disney is 1.08 times less risky than Invesco SP. The stock trades about -0.26 of its potential returns per unit of risk. The Invesco SP 500 is currently generating about -0.18 of returns per unit of risk over similar time horizon. If you would invest  10,196  in Invesco SP 500 on October 12, 2024 and sell it today you would lose (296.00) from holding Invesco SP 500 or give up 2.9% of portfolio value over 90 days.

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

Walt Disney  vs.  Invesco SP 500

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.

Invesco SP 500

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Invesco SP is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Disney and Invesco SP

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

The idea behind Walt Disney and Invesco SP 500 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.