Correlation Between Disney and CVS Corp

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

Diversification Opportunities for Disney and CVS Corp

0.47
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Disney and CVS Corp is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and CVS Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Corp 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 CVS Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVS Corp has no effect on the direction of Disney i.e., Disney and CVS Corp go up and down completely randomly.

Pair Corralation between Disney and CVS Corp

Considering the 90-day investment horizon Walt Disney is expected to under-perform the CVS Corp. In addition to that, Disney is 1.36 times more volatile than CVS Corp. It trades about -0.06 of its total potential returns per unit of risk. CVS Corp is currently generating about 0.04 per unit of volatility. If you would invest  8,800  in CVS Corp on August 29, 2022 and sell it today you would earn a total of  1,326  from holding CVS Corp or generate 15.07% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Walt Disney  vs.  CVS Corp

 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

CVS Corp 
CVS Corp Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in CVS Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, CVS Corp is not utilizing all of its potentials. The new stock price agitation, may contribute to short-term losses for the retail investors.

CVS Corp Price Channel

Disney and CVS Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Disney and CVS Corp

The main advantage of trading using opposite Disney and CVS Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Disney position performs unexpectedly, CVS Corp 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 CVS Corp will offset losses from the drop in CVS Corp's long position.
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The idea behind Walt Disney and CVS Corp 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 Price Transformation module to use Price Transformation models to analyze depth of different equity instruments across global markets.

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