Correlation Between Disney and SMC Entertainment

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

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

Diversification Opportunities for Disney and SMC Entertainment

-0.71

Correlation Coefficient

Disney  SMC Entertainment

Pay attention - limited upside

The 3 months correlation between Disney and SMC is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and SMC Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMC Entertainment 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 SMC Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SMC Entertainment has no effect on the direction of Disney i.e., Disney and SMC Entertainment go up and down completely randomly.

Pair Corralation between Disney and SMC Entertainment

Considering the 90-day investment horizon Walt Disney is expected to generate 0.15 times more return on investment than SMC Entertainment. However, Walt Disney is 6.5 times less risky than SMC Entertainment. It trades about 0.24 of its potential returns per unit of risk. SMC Entertainment is currently generating about -0.03 per unit of risk. If you would invest  9,185  in Walt Disney on September 15, 2024 and sell it today you would earn a total of  2,149  from holding Walt Disney or generate 23.4% return on investment over 90 days.

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

Walt Disney  vs.  SMC Entertainment

Walt Disney

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 18 (%) 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.

SMC Entertainment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SMC Entertainment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Disney and SMC Entertainment

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

The idea behind Walt Disney and SMC Entertainment 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..