Correlation Between Madison Square and Disney

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

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

Diversification Opportunities for Madison Square and Disney

-0.44

Correlation Coefficient

Madison Square  Disney

Very good diversification

The 3 months correlation between Madison and Disney is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Madison Square Garden and Walt Disney in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walt Disney and Madison Square 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 Madison Square Garden are associated (or correlated) with 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 Madison Square i.e., Madison Square and Disney go up and down completely randomly.

Pair Corralation between Madison Square and Disney

Given the investment horizon of 90 days Madison Square Garden is expected to generate 0.8 times more return on investment than Disney. However, Madison Square Garden is 1.25 times less risky than Disney. It trades about 0.03 of its potential returns per unit of risk. Walt Disney is currently generating about 0.02 per unit of risk. If you would invest  15,463  in Madison Square Garden on January 29, 2024 and sell it today you would earn a total of  3,215  from holding Madison Square Garden or generate 20.79% return on investment over 90 days.

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

Madison Square Garden  vs.  Walt Disney

Madison Square Garden

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Madison Square Garden has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Madison Square is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private 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. In spite of comparatively inconsistent forward indicators, Disney unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Madison Square and Disney

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

The idea behind Madison Square Garden 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.