Correlation Between Disney and Altair Engineering

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

Diversification Opportunities for Disney and Altair Engineering

0.76
  Correlation Coefficient

Poor diversification

The 3 months correlation between Disney and Altair is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Altair Engineering Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Altair Engineering 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 Altair Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Altair Engineering has no effect on the direction of Disney i.e., Disney and Altair Engineering go up and down completely randomly.

Pair Corralation between Disney and Altair Engineering

Considering the 90-day investment horizon Walt Disney is expected to under-perform the Altair Engineering. But the stock apears to be less risky and, when comparing its historical volatility, Walt Disney is 1.18 times less risky than Altair Engineering. The stock trades about -0.06 of its potential returns per unit of risk. The Altair Engineering is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  6,957  in Altair Engineering on May 21, 2022 and sell it today you would lose (1,480)  from holding Altair Engineering or give up 21.27% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Walt Disney  vs.  Altair Engineering Inc

 Performance (%) 
       Timeline  
Walt Disney 
Disney Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 7 (%) 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

Altair Engineering 
Altair Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Altair Engineering are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Altair Engineering may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Altair Price Channel

Disney and Altair Engineering Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Disney and Altair Engineering

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

Walt Disney

Pair trading matchups for Disney

The idea behind Walt Disney and Altair Engineering 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.

Altair Engineering

Pair trading matchups for Altair Engineering

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 Altair Engineering 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. Altair Engineering'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, Altair Engineering'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 Altair Engineering.
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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.

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