Correlation Between DOW and Disney

Specify exactly 2 symbols:
Can any of the company-specific risk be diversified away by investing in both DOW 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 DOW and Disney into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DOW and Walt Disney, you can compare the effects of market volatilities on DOW 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 DOW with a short position of Disney. Check out your portfolio center. Please also check ongoing floating volatility patterns of DOW and Disney.

Diversification Opportunities for DOW and Disney

0.74
  Correlation Coefficient

Poor diversification

The 3 months correlation between DOW and Disney is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding DOW and Walt Disney in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walt Disney and DOW 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 DOW 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 DOW i.e., DOW and Disney go up and down completely randomly.
    Optimize

Pair Corralation between DOW and Disney

Given the investment horizon of 90 days DOW is expected to generate 0.69 times more return on investment than Disney. However, DOW is 1.45 times less risky than Disney. It trades about -0.34 of its potential returns per unit of risk. Walt Disney is currently generating about -0.38 per unit of risk. If you would invest  3,228,340  in DOW on June 27, 2022 and sell it today you would lose (269,299)  from holding DOW or give up 8.34% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy95.45%
ValuesDaily Returns

DOW  vs.  Walt Disney

 Performance (%) 
       Timeline  

DOW and Disney Volatility Contrast

   Predicted Return Density   
       Returns  

DOW

Pair trading matchups for DOW

The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against DOW as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. DOW's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, DOW's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to DOW.

Pair Trading with DOW and Disney

The main advantage of trading using opposite DOW and Disney positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DOW 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 effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against DOW as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. DOW's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, DOW's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to DOW.
The idea behind DOW 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.
Disney vs. Logitech Int SA
Disney vs. NetApp Inc
Disney vs. Corsair Gaming
Disney vs. Rexel SA
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 Bond Directory module to find actively traded corporate debentures issued by US companies.

Other Complementary Tools

Volatility Analysis
Get historical volatility and risk analysis based on latest market data
Go
Piotroski F Score
Get Piotroski F Score based on binary analysis strategy of nine different fundamentals
Go
Stock Screener
Find equities using custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook.
Go
Bond Directory
Find actively traded corporate debentures issued by US companies
Go
Portfolio Volatility
Check portfolio volatility and analyze historical return density to properly model market risk
Go
Fundamental Analysis
View fundamental data based on most recent published financial statements
Go
Insider Screener
Find insiders across different sectors to evaluate their impact on performance
Go