Correlation Between Disney and PayPal Holdings
Can any of the company-specific risk be diversified away by investing in both Disney and PayPal Holdings 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 PayPal Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Walt Disney and PayPal Holdings, you can compare the effects of market volatilities on Disney and PayPal Holdings 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 PayPal Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Disney and PayPal Holdings.
Diversification Opportunities for Disney and PayPal Holdings
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Disney and PayPal is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and PayPal Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PayPal Holdings 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 PayPal Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PayPal Holdings has no effect on the direction of Disney i.e., Disney and PayPal Holdings go up and down completely randomly.
Pair Corralation between Disney and PayPal Holdings
Considering the 90-day investment horizon Disney is expected to generate 1.37 times less return on investment than PayPal Holdings. But when comparing it to its historical volatility, Walt Disney is 1.26 times less risky than PayPal Holdings. It trades about 0.08 of its potential returns per unit of risk. PayPal Holdings is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 5,462 in PayPal Holdings on September 1, 2024 and sell it today you would earn a total of 3,215 from holding PayPal Holdings or generate 58.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Walt Disney vs. PayPal Holdings
Performance |
| Timeline |
| Walt Disney |
| PayPal Holdings |
Disney and PayPal Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Disney and PayPal Holdings
The main advantage of trading using opposite Disney and PayPal Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Disney position performs unexpectedly, PayPal Holdings 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 PayPal Holdings will offset losses from the drop in PayPal Holdings' long position.| Disney vs. ADTRAN Inc | Disney vs. Belden Inc | Disney vs. ADC Therapeutics SA | Disney vs. Comtech Telecommunications Corp |
| PayPal Holdings vs. SoFi Technologies | PayPal Holdings vs. Visa Class A | PayPal Holdings vs. Mastercard | PayPal Holdings vs. Capital One Financial |
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 the Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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