Correlation Between Disney and Akamai Technologies

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

Diversification Opportunities for Disney and Akamai Technologies

0.73
  Correlation Coefficient

Poor diversification

The 3 months correlation between Disney and Akamai is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Akamai Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Akamai Technologies 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 Akamai Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Akamai Technologies has no effect on the direction of Disney i.e., Disney and Akamai Technologies go up and down completely randomly.

Pair Corralation between Disney and Akamai Technologies

Considering the 90-day investment horizon Walt Disney is expected to generate 1.48 times more return on investment than Akamai Technologies. However, Disney is 1.48 times more volatile than Akamai Technologies. It trades about 0.55 of its potential returns per unit of risk. Akamai Technologies is currently generating about 0.29 per unit of risk. If you would invest  9,184  in Walt Disney on May 15, 2022 and sell it today you would earn a total of  2,973  from holding Walt Disney or generate 32.37% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Walt Disney  vs.  Akamai Technologies

 Performance (%) 
       Timeline  
Walt Disney 
Disney Performance
8 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak forward indicators, Disney reported solid returns over the last few months and may actually be approaching a breakup point.

Disney Price Channel

Akamai Technologies 
Akamai Performance
0 of 100
Over the last 90 days Akamai Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady basic indicators, Akamai Technologies is not utilizing all of its potentials. The current stock price chaos, may contribute to medium-term losses for the stakeholders.

Akamai Price Channel

Disney and Akamai Technologies Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Disney and Akamai Technologies

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

Walt Disney

Pair trading matchups for Disney

The idea behind Walt Disney and Akamai Technologies 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.

Akamai Technologies

Pair trading matchups for Akamai Technologies

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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 Akamai Technologies 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. Akamai Technologies' 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, Akamai Technologies' 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 Akamai Technologies.
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 Fund Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.

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