Correlation Between Disney and Innovator

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

By analyzing existing cross correlation between Walt Disney and Innovator SP 500, you can compare the effects of market volatilities on Disney and Innovator 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 Innovator. Check out your portfolio center. Please also check ongoing floating volatility patterns of Disney and Innovator.

Diversification Opportunities for Disney and Innovator

0.87

Correlation Coefficient

Disney  Innovator

Very poor diversification

The 3 months correlation between Disney and Innovator is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Innovator SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator SP 500 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 Innovator. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator SP 500 has no effect on the direction of Disney i.e., Disney and Innovator go up and down completely randomly.

Pair Corralation between Disney and Innovator

Considering the 90-day investment horizon Walt Disney is expected to generate 8.86 times more return on investment than Innovator. However, Disney is 8.86 times more volatile than Innovator SP 500. It trades about 0.31 of its potential returns per unit of risk. Innovator SP 500 is currently generating about 0.17 per unit of risk. If you would invest  10,086  in Walt Disney on September 12, 2024 and sell it today you would earn a total of  1,376  from holding Walt Disney or generate 13.64% return on investment over 90 days.

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

Walt Disney  vs.  Innovator SP 500

Walt Disney

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak forward indicators, Disney unveiled solid returns over the last few months and may actually be approaching a breakup point.

Innovator SP 500

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Innovator SP 500 are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, Innovator is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Disney and Innovator

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

The idea behind Walt Disney and Innovator SP 500 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.