Correlation Between Disney and Salesforce

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

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

Diversification Opportunities for Disney and Salesforce

0.75

Correlation Coefficient

Disney  Salesforce

Poor diversification

The 3 months correlation between Disney and Salesforce is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Salesforce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Salesforce 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 Salesforce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Salesforce has no effect on the direction of Disney i.e., Disney and Salesforce go up and down completely randomly.

Pair Corralation between Disney and Salesforce

Considering the 90-day investment horizon Disney is expected to generate 5.17 times less return on investment than Salesforce. But when comparing it to its historical volatility, Walt Disney is 1.15 times less risky than Salesforce. It trades about 0.01 of its potential returns per unit of risk. Salesforce is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  17,571  in Salesforce on January 19, 2024 and sell it today you would earn a total of  9,621  from holding Salesforce or generate 54.75% return on investment over 90 days.

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

Walt Disney  vs.  Salesforce

Walt Disney

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 13 (%) 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.

Salesforce

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Salesforce has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Salesforce is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Disney and Salesforce

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

The idea behind Walt Disney and Salesforce 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.