Correlation Between Walt Disney and Telefonaktiebolaget

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

By analyzing existing cross correlation between The Walt Disney and Telefonaktiebolaget LM Ericsson, you can compare the effects of market volatilities on Walt Disney and Telefonaktiebolaget 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 Walt Disney with a short position of Telefonaktiebolaget. Check out your portfolio center. Please also check ongoing floating volatility patterns of Walt Disney and Telefonaktiebolaget.

Diversification Opportunities for Walt Disney and Telefonaktiebolaget

0.63

Correlation Coefficient

Walt Disney  Telefonaktiebolaget

Poor diversification

The 3 months correlation between Walt and Telefonaktiebolaget is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding The Walt Disney and Telefonaktiebolaget LM Ericsso in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefonaktiebolaget and Walt 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 The Walt Disney are associated (or correlated) with Telefonaktiebolaget. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telefonaktiebolaget has no effect on the direction of Walt Disney i.e., Walt Disney and Telefonaktiebolaget go up and down completely randomly.

Pair Corralation between Walt Disney and Telefonaktiebolaget

Assuming the 90 days trading horizon The Walt Disney is expected to generate 0.73 times more return on investment than Telefonaktiebolaget. However, The Walt Disney is 1.37 times less risky than Telefonaktiebolaget. It trades about 0.33 of its potential returns per unit of risk. Telefonaktiebolaget LM Ericsson is currently generating about 0.13 per unit of risk. If you would invest  3,337  in The Walt Disney on September 3, 2024 and sell it today you would earn a total of  1,328  from holding The Walt Disney or generate 39.8% return on investment over 90 days.

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

The Walt Disney  vs.  Telefonaktiebolaget LM Ericsso

Walt Disney

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in The Walt Disney are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Walt Disney sustained solid returns over the last few months and may actually be approaching a breakup point.

Telefonaktiebolaget

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonaktiebolaget LM Ericsson are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Telefonaktiebolaget sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Walt Disney and Telefonaktiebolaget

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

The idea behind The Walt Disney and Telefonaktiebolaget LM Ericsson 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.