Correlation Between GM and Walt Disney
Can any of the company-specific risk be diversified away by investing in both GM and Walt Disney 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 GM and Walt Disney into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Walt Disney, you can compare the effects of market volatilities on GM and Walt Disney 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 GM with a short position of Walt Disney. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Walt Disney.
Diversification Opportunities for GM and Walt Disney
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and Walt is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Walt Disney in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walt Disney and GM 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 General Motors are associated (or correlated) with Walt Disney. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walt Disney has no effect on the direction of GM i.e., GM and Walt Disney go up and down completely randomly.
Pair Corralation between GM and Walt Disney
Allowing for the 90-day total investment horizon GM is expected to generate 1.46 times less return on investment than Walt Disney. In addition to that, GM is 1.51 times more volatile than Walt Disney. It trades about 0.16 of its total potential returns per unit of risk. Walt Disney is currently generating about 0.36 per unit of volatility. If you would invest 939,000 in Walt Disney on September 2, 2024 and sell it today you would earn a total of 136,000 from holding Walt Disney or generate 14.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Walt Disney
Performance |
| Timeline |
| General Motors |
| Walt Disney |
GM and Walt Disney Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Walt Disney
The main advantage of trading using opposite GM and Walt Disney positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Walt Disney 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 Walt Disney will offset losses from the drop in Walt Disney's long position.The idea behind General Motors and Walt Disney 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.| Walt Disney vs. Telecom Argentina | Walt Disney vs. American Express Co | Walt Disney vs. QUALCOMM Incorporated | Walt Disney vs. United States Steel |
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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