Correlation Between Disney and Digipath

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

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

Diversification Opportunities for Disney and Digipath

-0.23

Correlation Coefficient

Disney  Digipath

Very good diversification

The 3 months correlation between Disney and Digipath is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Digipath in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digipath 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 Digipath. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digipath has no effect on the direction of Disney i.e., Disney and Digipath go up and down completely randomly.

Pair Corralation between Disney and Digipath

Considering the 90-day investment horizon Walt Disney is expected to under-perform the Digipath. But the stock apears to be less risky and, when comparing its historical volatility, Walt Disney is 14.94 times less risky than Digipath. The stock trades about -0.3 of its potential returns per unit of risk. The Digipath is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  1.74  in Digipath on January 29, 2024 and sell it today you would earn a total of  1.40  from holding Digipath or generate 80.46% return on investment over 90 days.

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

Walt Disney  vs.  Digipath

Walt Disney

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent forward indicators, Disney unveiled solid returns over the last few months and may actually be approaching a breakup point.

Digipath

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Digipath are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating technical and fundamental indicators, Digipath reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Disney and Digipath

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

The idea behind Walt Disney and Digipath 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.