Correlation Between Disney and Amada

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

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

Diversification Opportunities for Disney and Amada

0.78

Correlation Coefficient

Disney  Amada

Poor diversification

The 3 months correlation between Disney and Amada is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Amada Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amada 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 Amada. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amada has no effect on the direction of Disney i.e., Disney and Amada go up and down completely randomly.

Pair Corralation between Disney and Amada

Considering the 90-day investment horizon Disney is expected to generate 1.93 times less return on investment than Amada. In addition to that, Disney is 1.25 times more volatile than Amada Co. It trades about 0.03 of its total potential returns per unit of risk. Amada Co is currently generating about 0.08 per unit of volatility. If you would invest  3,438  in Amada Co on February 3, 2024 and sell it today you would earn a total of  1,016  from holding Amada Co or generate 29.55% return on investment over 90 days.

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

Walt Disney  vs.  Amada Co

Walt Disney

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting forward indicators, Disney unveiled solid returns over the last few months and may actually be approaching a breakup point.

Amada

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Amada Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain essential indicators, Amada may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Disney and Amada

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

The idea behind Walt Disney and Amada Co 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.