Correlation Between International Business and Disney

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

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

Diversification Opportunities for International Business and Disney

-0.08

Correlation Coefficient

International Business  Disney

Good diversification

The 3 months correlation between International and Disney is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and Walt Disney in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walt Disney and International Business 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 International Business Machines are associated (or correlated) with Disney. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walt Disney has no effect on the direction of International Business i.e., International Business and Disney go up and down completely randomly.

Pair Corralation between International Business and Disney

Considering the 90-day investment horizon International Business Machines is expected to generate 2.03 times more return on investment than Disney. However, International Business is 2.03 times more volatile than Walt Disney. It trades about 0.1 of its potential returns per unit of risk. Walt Disney is currently generating about -0.03 per unit of risk. If you would invest  22,589  in International Business Machines on December 2, 2024 and sell it today you would earn a total of  2,655  from holding International Business Machines or generate 11.75% return on investment over 90 days.

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

International Business Machine  vs.  Walt Disney

International Business

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in International Business Machines are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental drivers, International Business displayed solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with International Business and Disney

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

The idea behind International Business Machines and Walt Disney 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.