Correlation Between Disney and South32

Can any of the company-specific risk be diversified away by investing in both Disney and South32 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 South32 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Walt Disney and South32 Limited, you can compare the effects of market volatilities on Disney and South32 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 South32. Check out your portfolio center. Please also check ongoing floating volatility patterns of Disney and South32.

Diversification Opportunities for Disney and South32

0.69

Correlation Coefficient

Disney  South32

Poor diversification

The 3 months correlation between Disney and South32 is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and South32 Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on South32 Limited 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 South32. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of South32 Limited has no effect on the direction of Disney i.e., Disney and South32 go up and down completely randomly.

Pair Corralation between Disney and South32

Considering the 90-day investment horizon Walt Disney is expected to under-perform the South32. But the stock apears to be less risky and, when comparing its historical volatility, Walt Disney is 3.15 times less risky than South32. The stock trades about -0.08 of its potential returns per unit of risk. The South32 Limited is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  227.00  in South32 Limited on November 29, 2024 and sell it today you would lose (12.00) from holding South32 Limited or give up 5.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

Walt Disney  vs.  South32 Limited

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 comparatively stable forward indicators, Disney is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

South32 Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days South32 Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, South32 is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Disney and South32

The main advantage of trading using opposite Disney and South32 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Disney position performs unexpectedly, South32 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 South32 will offset losses from the drop in South32's long position.

The idea behind Walt Disney and South32 Limited 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.