Correlation Between Disney and Salesforce
Can any of the company-specific risk be diversified away by investing in both Disney and Salesforce 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 Salesforce into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Walt Disney and Salesforce, you can compare the effects of market volatilities on Disney and Salesforce 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 Salesforce. Check out your portfolio center. Please also check ongoing floating volatility patterns of Disney and Salesforce.
Diversification Opportunities for Disney and Salesforce
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Disney and Salesforce is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Salesforce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Salesforce 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 Salesforce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Salesforce has no effect on the direction of Disney i.e., Disney and Salesforce go up and down completely randomly.
Pair Corralation between Disney and Salesforce
Considering the 90-day investment horizon Walt Disney is expected to generate 1.0 times more return on investment than Salesforce. However, Disney is 1.0 times more volatile than Salesforce. It trades about 0.09 of its potential returns per unit of risk. Salesforce is currently generating about 0.07 per unit of risk. If you would invest 8,585 in Walt Disney on January 24, 2024 and sell it today you would earn a total of 2,614 from holding Walt Disney or generate 30.45% 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. Salesforce
Performance |
| Timeline |
| Walt Disney |
| Salesforce |
Disney and Salesforce Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Disney and Salesforce
The main advantage of trading using opposite Disney and Salesforce positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Disney position performs unexpectedly, Salesforce 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 Salesforce will offset losses from the drop in Salesforce's long position.The idea behind Walt Disney and Salesforce 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 the Equity Valuation module to check real value of public entities based on technical and fundamental data.
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