Correlation Between Disney and Genuine Parts

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

Diversification Opportunities for Disney and Genuine Parts

0.48
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Disney and Genuine is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Genuine Parts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Genuine Parts 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 Genuine Parts. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Genuine Parts has no effect on the direction of Disney i.e., Disney and Genuine Parts go up and down completely randomly.

Pair Corralation between Disney and Genuine Parts

Considering the 90-day investment horizon Walt Disney is expected to generate 1.61 times more return on investment than Genuine Parts. However, Disney is 1.61 times more volatile than Genuine Parts. It trades about 0.25 of its potential returns per unit of risk. Genuine Parts is currently generating about 0.33 per unit of risk. If you would invest  9,571  in Walt Disney on May 14, 2022 and sell it today you would earn a total of  2,198  from holding Walt Disney or generate 22.97% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy97.67%
ValuesDaily Returns

Walt Disney  vs.  Genuine Parts

 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

Genuine Parts 
Genuine Performance
12 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Genuine Parts are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Genuine Parts sustained solid returns over the last few months and may actually be approaching a breakup point.

Genuine Price Channel

Disney and Genuine Parts Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Disney and Genuine Parts

The main advantage of trading using opposite Disney and Genuine Parts positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Disney position performs unexpectedly, Genuine Parts 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 Genuine Parts will offset losses from the drop in Genuine Parts' long position.
The idea behind Walt Disney and Genuine Parts 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.
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.

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