Correlation Between Disney and Sunoco

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

By analyzing existing cross correlation between Walt Disney and Sunoco LP 6, you can compare the effects of market volatilities on Disney and Sunoco 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 Sunoco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Disney and Sunoco.

Diversification Opportunities for Disney and Sunoco

0.2

Correlation Coefficient

Disney  Sunoco

Modest diversification

The 3 months correlation between Disney and Sunoco is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Sunoco LP 6 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunoco LP 6 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 Sunoco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunoco LP 6 has no effect on the direction of Disney i.e., Disney and Sunoco go up and down completely randomly.

Pair Corralation between Disney and Sunoco

Considering the 90-day investment horizon Walt Disney is expected to generate 3.59 times more return on investment than Sunoco. However, Disney is 3.59 times more volatile than Sunoco LP 6. It trades about 0.28 of its potential returns per unit of risk. Sunoco LP 6 is currently generating about -0.01 per unit of risk. If you would invest  8,930  in Walt Disney on September 12, 2024 and sell it today you would earn a total of  2,553  from holding Walt Disney or generate 28.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.88%
Values	Daily Returns

Walt Disney  vs.  Sunoco LP 6

Walt Disney

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 22 (%) 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.

Sunoco LP 6

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sunoco LP 6 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Sunoco is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Disney and Sunoco

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

The idea behind Walt Disney and Sunoco LP 6 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.