Correlation Between Disney and SOUTHERN

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

Diversification Opportunities for Disney and SOUTHERN

-0.43
  Correlation Coefficient

Very good diversification

The 3 months correlation between Disney and SOUTHERN is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and SOUTHERN CALIF EDISON in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SOUTHERN CALIF EDISON 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 SOUTHERN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SOUTHERN CALIF EDISON has no effect on the direction of Disney i.e., Disney and SOUTHERN go up and down completely randomly.

Pair Corralation between Disney and SOUTHERN

Considering the 90-day investment horizon Walt Disney is expected to generate 3.02 times more return on investment than SOUTHERN. However, Disney is 3.02 times more volatile than SOUTHERN CALIF EDISON. It trades about 0.32 of its potential returns per unit of risk. SOUTHERN CALIF EDISON is currently generating about 0.31 per unit of risk. If you would invest  10,086  in Walt Disney on September 12, 2024 and sell it today you would earn a total of  1,387  from holding Walt Disney or generate 13.75% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy80.95%
ValuesDaily Returns

Walt Disney  vs.  SOUTHERN CALIF EDISON

 Performance 
       Timeline  
Walt Disney 

Risk-Adjusted Performance

22 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak forward indicators, Disney unveiled solid returns over the last few months and may actually be approaching a breakup point.
SOUTHERN CALIF EDISON 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days SOUTHERN CALIF EDISON has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, SOUTHERN is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Disney and SOUTHERN Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Disney and SOUTHERN

The main advantage of trading using opposite Disney and SOUTHERN positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Disney position performs unexpectedly, SOUTHERN 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 SOUTHERN will offset losses from the drop in SOUTHERN's long position.
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The idea behind Walt Disney and SOUTHERN CALIF EDISON 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 the Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.

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