Correlation Between Disney and Ford
Can any of the company-specific risk be diversified away by investing in both Disney and Ford 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 Ford into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Walt Disney and Ford Motor, you can compare the effects of market volatilities on Disney and Ford 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 Ford. Check out your portfolio center. Please also check ongoing floating volatility patterns of Disney and Ford.
Diversification Opportunities for Disney and Ford
Very poor diversification
The 3 months correlation between Disney and Ford is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Ford Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ford Motor 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 Ford. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ford Motor has no effect on the direction of Disney i.e., Disney and Ford go up and down completely randomly.
Pair Corralation between Disney and Ford
Considering the 90-day investment horizon Disney is expected to generate 1.22 times less return on investment than Ford. But when comparing it to its historical volatility, Walt Disney is 1.25 times less risky than Ford. It trades about 0.03 of its potential returns per unit of risk. Ford Motor is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 1,144 in Ford Motor on January 26, 2024 and sell it today you would earn a total of 151.00 from holding Ford Motor or generate 13.2% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Walt Disney vs. Ford Motor
Performance |
Timeline |
Walt Disney |
Ford Motor |
Disney and Ford Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Disney and Ford
The main advantage of trading using opposite Disney and Ford positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Disney position performs unexpectedly, Ford 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 Ford will offset losses from the drop in Ford's long position.Disney vs. Roku Inc | Disney vs. Paramount Global Class | Disney vs. Warner Bros Discovery | Disney vs. Paramount Global Class |
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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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