Correlation Between Disney and Twitter

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

Diversification Opportunities for Disney and Twitter

0.74
  Correlation Coefficient

Poor diversification

The 3 months correlation between Disney and Twitter is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Twitter in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Twitter 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 Twitter. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Twitter has no effect on the direction of Disney i.e., Disney and Twitter go up and down completely randomly.

Pair Corralation between Disney and Twitter

Considering the 90-day investment horizon Walt Disney is expected to under-perform the Twitter. But the stock apears to be less risky and, when comparing its historical volatility, Walt Disney is 1.79 times less risky than Twitter. The stock trades about -0.07 of its potential returns per unit of risk. The Twitter is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,293  in Twitter on May 21, 2022 and sell it today you would earn a total of  1,106  from holding Twitter or generate 33.59% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Walt Disney  vs.  Twitter

 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

Twitter 
Twitter Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Twitter are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Twitter reported solid returns over the last few months and may actually be approaching a breakup point.

Twitter Price Channel

Disney and Twitter Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Disney and Twitter

The main advantage of trading using opposite Disney and Twitter positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Disney position performs unexpectedly, Twitter 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 Twitter will offset losses from the drop in Twitter's long position.

Walt Disney

Pair trading matchups for Disney

The idea behind Walt Disney and Twitter 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.

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