Correlation Between Microsoft and Walt Disney

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

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

Diversification Opportunities for Microsoft and Walt Disney

-0.55

Correlation Coefficient

Microsoft  Walt Disney

Excellent diversification

The 3 months correlation between Microsoft and Walt is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Walt Disney in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walt Disney and Microsoft 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 Microsoft are associated (or correlated) with Walt Disney. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walt Disney has no effect on the direction of Microsoft i.e., Microsoft and Walt Disney go up and down completely randomly.

Pair Corralation between Microsoft and Walt Disney

Assuming the 90 days trading horizon Microsoft is expected to under-perform the Walt Disney. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.04 times less risky than Walt Disney. The stock trades about -0.09 of its potential returns per unit of risk. The Walt Disney is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  940,000  in Walt Disney on September 5, 2024 and sell it today you would earn a total of  130,000  from holding Walt Disney or generate 13.83% return on investment over 90 days.

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

Microsoft  vs.  Walt Disney

Microsoft

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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. Despite somewhat weak basic indicators, Walt Disney sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Walt Disney

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

The idea behind Microsoft and Walt Disney 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.