Correlation Between Disney and Adobe Systems

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

Diversification Opportunities for Disney and Adobe Systems

0.91
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Disney and Adobe is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Adobe Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adobe Systems 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 Adobe Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adobe Systems has no effect on the direction of Disney i.e., Disney and Adobe Systems go up and down completely randomly.

Pair Corralation between Disney and Adobe Systems

Considering the 90-day investment horizon Walt Disney is expected to under-perform the Adobe Systems. But the stock apears to be less risky and, when comparing its historical volatility, Walt Disney is 1.22 times less risky than Adobe Systems. The stock trades about -0.03 of its potential returns per unit of risk. The Adobe Systems is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  47,344  in Adobe Systems on May 18, 2022 and sell it today you would lose (2,746)  from holding Adobe Systems or give up 5.8% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Walt Disney  vs.  Adobe Systems

 Performance (%) 
       Timeline  
Walt Disney 
Disney Performance
10 of 100
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. Even with relatively conflicting forward indicators, Disney reported solid returns over the last few months and may actually be approaching a breakup point.

Disney Price Channel

Adobe Systems 
Adobe Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Adobe Systems are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather sluggish fundamental drivers, Adobe Systems exhibited solid returns over the last few months and may actually be approaching a breakup point.

Adobe Price Channel

Disney and Adobe Systems Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Disney and Adobe Systems

The main advantage of trading using opposite Disney and Adobe Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Disney position performs unexpectedly, Adobe Systems 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 Adobe Systems will offset losses from the drop in Adobe Systems' long position.
The idea behind Walt Disney and Adobe Systems 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.
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.

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