Correlation Between Walt Disney and Microsoft

Can any of the company-specific risk be diversified away by investing in both Walt Disney and Microsoft 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 Microsoft 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 Microsoft, you can compare the effects of market volatilities on Walt Disney and Microsoft 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 Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Walt Disney and Microsoft.

Diversification Opportunities for Walt Disney and Microsoft

0.13

Correlation Coefficient

Walt Disney  Microsoft

Average diversification

The 3 months correlation between Walt and Microsoft is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding The Walt Disney and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft 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 Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Walt Disney i.e., Walt Disney and Microsoft go up and down completely randomly.

Pair Corralation between Walt Disney and Microsoft

Assuming the 90 days horizon The Walt Disney is expected to generate 0.75 times more return on investment than Microsoft. However, The Walt Disney is 1.34 times less risky than Microsoft. It trades about -0.01 of its potential returns per unit of risk. Microsoft is currently generating about -0.08 per unit of risk. If you would invest  11,067  in The Walt Disney on December 2, 2024 and sell it today you would lose (117.00) from holding The Walt Disney or give up 1.06% of portfolio value over 90 days.

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

The Walt Disney  vs.  Microsoft

Walt Disney

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Walt Disney has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Walt Disney is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Microsoft

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Walt Disney and Microsoft

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

The idea behind The Walt Disney and Microsoft 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.