Correlation Between Disney and Chesapeake Energy

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

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

Diversification Opportunities for Disney and Chesapeake Energy

-0.47

Correlation Coefficient

Disney  Chesapeake Energy

Very good diversification

The 3 months correlation between Disney and Chesapeake is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Chesapeake Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chesapeake Energy 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 Chesapeake Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chesapeake Energy has no effect on the direction of Disney i.e., Disney and Chesapeake Energy go up and down completely randomly.

Pair Corralation between Disney and Chesapeake Energy

Considering the 90-day investment horizon Disney is expected to generate 1276.18 times less return on investment than Chesapeake Energy. But when comparing it to its historical volatility, Walt Disney is 282.84 times less risky than Chesapeake Energy. It trades about 0.09 of its potential returns per unit of risk. Chesapeake Energy is currently generating about 0.41 of returns per unit of risk over similar time horizon. If you would invest  7,853  in Chesapeake Energy on September 3, 2024 and sell it today you would lose (664.00) from holding Chesapeake Energy or give up 8.46% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	21.6%
Values	Daily Returns

Walt Disney  vs.  Chesapeake Energy

Walt Disney

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, Disney unveiled solid returns over the last few months and may actually be approaching a breakup point.

Chesapeake Energy

Risk-Adjusted Performance

0 of 100

Very Strong

Over the last 90 days Chesapeake Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly weak technical and fundamental indicators, Chesapeake Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Disney and Chesapeake Energy

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

The idea behind Walt Disney and Chesapeake Energy 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.