Correlation Between Disney and Community

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

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

Diversification Opportunities for Disney and Community

0.0

Correlation Coefficient

Disney  Community

Pay attention - limited upside

The 3 months correlation between Disney and Community is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Community Health Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Community Health Systems 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 Community. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Community Health Systems has no effect on the direction of Disney i.e., Disney and Community go up and down completely randomly.

Pair Corralation between Disney and Community

If you would invest  8,832  in Walt Disney on September 11, 2024 and sell it today you would earn a total of  2,641  from holding Walt Disney or generate 29.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	1.56%
Values	Daily Returns

Walt Disney  vs.  Community Health Systems

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.

Community Health Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Community Health Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Community is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Disney and Community

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

The idea behind Walt Disney and Community Health Systems 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.