Correlation Between Disney and Volkswagen

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

By analyzing existing cross correlation between Walt Disney and Volkswagen AG 110, you can compare the effects of market volatilities on Disney and Volkswagen 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 Volkswagen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Disney and Volkswagen.

Diversification Opportunities for Disney and Volkswagen

-0.54

Correlation Coefficient

Disney  Volkswagen

Excellent diversification

The 3 months correlation between Disney and Volkswagen is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Volkswagen AG 110 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG 110 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 Volkswagen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volkswagen AG 110 has no effect on the direction of Disney i.e., Disney and Volkswagen go up and down completely randomly.

Pair Corralation between Disney and Volkswagen

Considering the 90-day investment horizon Walt Disney is expected to under-perform the Volkswagen. But the stock apears to be less risky and, when comparing its historical volatility, Walt Disney is 1.67 times less risky than Volkswagen. The stock trades about -0.09 of its potential returns per unit of risk. The Volkswagen AG 110 is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  867.00  in Volkswagen AG 110 on November 27, 2024 and sell it today you would earn a total of  218.00  from holding Volkswagen AG 110 or generate 25.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.31%
Values	Daily Returns

Walt Disney  vs.  Volkswagen AG 110

Walt Disney

Risk-Adjusted Performance

Very Weak

Over the last 90 days Walt Disney has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward indicators, Disney is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Volkswagen AG 110

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Volkswagen AG 110 are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Volkswagen showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Disney and Volkswagen

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

The idea behind Walt Disney and Volkswagen AG 110 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.