Correlation Between Disney and American CuMo

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

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

Diversification Opportunities for Disney and American CuMo

-0.68

Correlation Coefficient

Disney  American CuMo

Excellent diversification

The 3 months correlation between Disney and American is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and American CuMo Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American CuMo Mining 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 American CuMo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American CuMo Mining has no effect on the direction of Disney i.e., Disney and American CuMo go up and down completely randomly.

Pair Corralation between Disney and American CuMo

Considering the 90-day investment horizon Disney is expected to generate 1.56 times less return on investment than American CuMo. But when comparing it to its historical volatility, Walt Disney is 12.28 times less risky than American CuMo. It trades about 0.24 of its potential returns per unit of risk. American CuMo Mining is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2.00  in American CuMo Mining on September 15, 2024 and sell it today you would lose (1.00) from holding American CuMo Mining or give up 50.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Walt Disney  vs.  American CuMo Mining

Walt Disney

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 18 (%) 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.

American CuMo Mining

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American CuMo Mining are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, American CuMo reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Disney and American CuMo

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

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