Correlation Between Disney and Shanghai Electric

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

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

Diversification Opportunities for Disney and Shanghai Electric

0.66

Correlation Coefficient

Disney  Shanghai Electric

Poor diversification

The 3 months correlation between Disney and Shanghai is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Shanghai Electric Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Electric 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 Shanghai Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Electric has no effect on the direction of Disney i.e., Disney and Shanghai Electric go up and down completely randomly.

Pair Corralation between Disney and Shanghai Electric

Considering the 90-day investment horizon Disney is expected to generate 3.43 times less return on investment than Shanghai Electric. But when comparing it to its historical volatility, Walt Disney is 7.85 times less risky than Shanghai Electric. It trades about 0.31 of its potential returns per unit of risk. Shanghai Electric Group is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  370.00  in Shanghai Electric Group on September 4, 2024 and sell it today you would earn a total of  340.00  from holding Shanghai Electric Group or generate 91.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Walt Disney  vs.  Shanghai Electric Group

Walt Disney

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, Disney unveiled solid returns over the last few months and may actually be approaching a breakup point.

Shanghai Electric

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Electric Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile essential indicators, Shanghai Electric showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Disney and Shanghai Electric

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

The idea behind Walt Disney and Shanghai Electric Group 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.