Correlation Between Disney and Invesco QQQ

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

Diversification Opportunities for Disney and Invesco QQQ

0.59
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Disney and Invesco is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Invesco QQQ Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco QQQ Trust 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 Invesco QQQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco QQQ Trust has no effect on the direction of Disney i.e., Disney and Invesco QQQ go up and down completely randomly.

Pair Corralation between Disney and Invesco QQQ

Considering the 90-day investment horizon Walt Disney is expected to under-perform the Invesco QQQ. In addition to that, Disney is 1.14 times more volatile than Invesco QQQ Trust. It trades about -0.07 of its total potential returns per unit of risk. Invesco QQQ Trust is currently generating about -0.05 per unit of volatility. If you would invest  38,984  in Invesco QQQ Trust on September 8, 2022 and sell it today you would lose (10,816)  from holding Invesco QQQ Trust or give up 27.74% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Walt Disney  vs.  Invesco QQQ Trust

 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 uncertain performance in the last few months, the Stock's forward indicators remain relatively invariable which may send shares a bit higher in January 2023. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Disney Price Channel

Invesco QQQ Trust 
Invesco Performance
0 of 100
Over the last 90 days Invesco QQQ Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Invesco QQQ is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the insiders.

Invesco Price Channel

Disney and Invesco QQQ Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Disney and Invesco QQQ

The main advantage of trading using opposite Disney and Invesco QQQ positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Disney position performs unexpectedly, Invesco QQQ 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 Invesco QQQ will offset losses from the drop in Invesco QQQ's long position.
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The idea behind Walt Disney and Invesco QQQ Trust 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.
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 Invesco QQQ 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. Invesco QQQ'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, Invesco QQQ'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 Invesco QQQ Trust.
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.

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