Correlation Between Disney and KINDER

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

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

Diversification Opportunities for Disney and KINDER

-0.04

Correlation Coefficient

Disney  KINDER

Good diversification

The 3 months correlation between Disney and KINDER is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and KINDER MORGAN ENERGY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KINDER MORGAN 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 KINDER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KINDER MORGAN ENERGY has no effect on the direction of Disney i.e., Disney and KINDER go up and down completely randomly.

Pair Corralation between Disney and KINDER

Considering the 90-day investment horizon Walt Disney is expected to generate 0.64 times more return on investment than KINDER. However, Walt Disney is 1.57 times less risky than KINDER. It trades about -0.25 of its potential returns per unit of risk. KINDER MORGAN ENERGY is currently generating about -0.18 per unit of risk. If you would invest  11,594  in Walt Disney on October 4, 2024 and sell it today you would lose (459.00) from holding Walt Disney or give up 3.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	80.95%
Values	Daily Returns

Walt Disney  vs.  KINDER MORGAN ENERGY

Walt Disney

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 14 (%) 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.

KINDER MORGAN ENERGY

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KINDER MORGAN ENERGY has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, KINDER 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 KINDER

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

The idea behind Walt Disney and KINDER MORGAN 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.