Correlation Between Disney and Dolby Laboratories

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

Diversification Opportunities for Disney and Dolby Laboratories

0.64
  Correlation Coefficient

Poor diversification

The 3 months correlation between Disney and Dolby is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Dolby Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dolby Laboratories 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 Dolby Laboratories. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dolby Laboratories has no effect on the direction of Disney i.e., Disney and Dolby Laboratories go up and down completely randomly.

Pair Corralation between Disney and Dolby Laboratories

Considering the 90-day investment horizon Walt Disney is expected to under-perform the Dolby Laboratories. In addition to that, Disney is 1.2 times more volatile than Dolby Laboratories. It trades about -0.08 of its total potential returns per unit of risk. Dolby Laboratories is currently generating about -0.05 per unit of volatility. If you would invest  8,259  in Dolby Laboratories on June 28, 2022 and sell it today you would lose (1,458)  from holding Dolby Laboratories or give up 17.65% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Walt Disney  vs.  Dolby Laboratories

 Performance (%) 
       Timeline  
Walt Disney 
Disney Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward indicators, Disney is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Disney Price Channel

Dolby Laboratories 
Dolby Performance
0 of 100
Over the last 90 days Dolby Laboratories has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, Dolby Laboratories is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dolby Price Channel

Disney and Dolby Laboratories Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Disney and Dolby Laboratories

The main advantage of trading using opposite Disney and Dolby Laboratories positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Disney position performs unexpectedly, Dolby Laboratories 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 Dolby Laboratories will offset losses from the drop in Dolby Laboratories' long position.
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The idea behind Walt Disney and Dolby Laboratories 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.

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