Correlation Between Disney and China Merchants

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

Diversification Opportunities for Disney and China Merchants

0.44
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Disney and China is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and China Merchants Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Merchants Bank 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 China Merchants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Merchants Bank has no effect on the direction of Disney i.e., Disney and China Merchants go up and down completely randomly.

Pair Corralation between Disney and China Merchants

Considering the 90-day investment horizon Walt Disney is expected to under-perform the China Merchants. In addition to that, Disney is 1.02 times more volatile than China Merchants Bank. It trades about -0.05 of its total potential returns per unit of risk. China Merchants Bank is currently generating about 0.34 per unit of volatility. If you would invest  1,753  in China Merchants Bank on August 28, 2022 and sell it today you would earn a total of  542.00  from holding China Merchants Bank or generate 30.92% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy95.45%
ValuesDaily Returns

Walt Disney  vs.  China Merchants Bank

 Performance (%) 
       Timeline  
Walt Disney 
Disney Performance
0 of 100
Over the last 90 days Walt Disney has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's forward indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Disney Price Channel

China Merchants Bank 
China Performance
0 of 100
Over the last 90 days China Merchants Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking signals, China Merchants is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

China Price Channel

Disney and China Merchants Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Disney and China Merchants

The main advantage of trading using opposite Disney and China Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Disney position performs unexpectedly, China Merchants 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 China Merchants will offset losses from the drop in China Merchants' long position.
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The idea behind Walt Disney and China Merchants Bank 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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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 Analyst Recommendations module to analyst recommendations and target price estimates broken down by several categories.

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