Correlation Between Disney and Searchlight Resources

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

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

Diversification Opportunities for Disney and Searchlight Resources

0.01

Correlation Coefficient

Disney  Searchlight Resources

Significant diversification

The 3 months correlation between Disney and Searchlight is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Searchlight Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Searchlight Resources 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 Searchlight Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Searchlight Resources has no effect on the direction of Disney i.e., Disney and Searchlight Resources go up and down completely randomly.

Pair Corralation between Disney and Searchlight Resources

Considering the 90-day investment horizon Walt Disney is expected to under-perform the Searchlight Resources. But the stock apears to be less risky and, when comparing its historical volatility, Walt Disney is 17.1 times less risky than Searchlight Resources. The stock trades about -0.12 of its potential returns per unit of risk. The Searchlight Resources is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  0.78  in Searchlight Resources on December 27, 2024 and sell it today you would earn a total of  0.25  from holding Searchlight Resources or generate 32.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Walt Disney  vs.  Searchlight Resources

Walt Disney

Risk-Adjusted Performance

Very Weak

Over the last 90 days Walt Disney has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's forward indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Searchlight Resources

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Searchlight Resources are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Searchlight Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Disney and Searchlight Resources

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

The idea behind Walt Disney and Searchlight Resources 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.