Correlation Between Disney and Small Cap
Can any of the company-specific risk be diversified away by investing in both Disney and Small Cap 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 Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Walt Disney and Small Cap Special, you can compare the effects of market volatilities on Disney and Small Cap 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 Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Disney and Small Cap.
Diversification Opportunities for Disney and Small Cap
Poor diversification
The 3 months correlation between Disney and Small is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Small Cap Special in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Special 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 Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Special has no effect on the direction of Disney i.e., Disney and Small Cap go up and down completely randomly.
Pair Corralation between Disney and Small Cap
Considering the 90-day investment horizon Walt Disney is expected to generate 1.42 times more return on investment than Small Cap. However, Disney is 1.42 times more volatile than Small Cap Special. It trades about 0.06 of its potential returns per unit of risk. Small Cap Special is currently generating about 0.08 per unit of risk. If you would invest 9,186 in Walt Disney on August 27, 2024 and sell it today you would earn a total of 2,379 from holding Walt Disney or generate 25.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Walt Disney vs. Small Cap Special
Performance |
| Timeline |
| Walt Disney |
| Small Cap Special |
Disney and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Disney and Small Cap
The main advantage of trading using opposite Disney and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Disney position performs unexpectedly, Small Cap 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 Small Cap will offset losses from the drop in Small Cap's long position.| Disney vs. Roku Inc | Disney vs. AMC Entertainment Holdings | Disney vs. Paramount Global Class | Disney vs. Warner Bros Discovery |
| Small Cap vs. Mid Cap Index | Small Cap vs. Mid Cap Strategic | Small Cap vs. Valic Company I | Small Cap vs. Valic Company I |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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