Correlation Between Disney and Tamarack Valley

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

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

Diversification Opportunities for Disney and Tamarack Valley

0.66

Correlation Coefficient

Disney  Tamarack Valley

Poor diversification

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

Pair Corralation between Disney and Tamarack Valley

Considering the 90-day investment horizon Walt Disney is expected to generate 0.63 times more return on investment than Tamarack Valley. However, Walt Disney is 1.6 times less risky than Tamarack Valley. It trades about 0.31 of its potential returns per unit of risk. Tamarack Valley Energy is currently generating about 0.1 per unit of risk. If you would invest  8,925  in Walt Disney on September 4, 2024 and sell it today you would earn a total of  2,791  from holding Walt Disney or generate 31.27% return on investment over 90 days.

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

Walt Disney  vs.  Tamarack Valley Energy

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.

Tamarack Valley Energy

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tamarack Valley Energy are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Tamarack Valley reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Disney and Tamarack Valley

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

The idea behind Walt Disney and Tamarack Valley Energy 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.