Correlation Between Salesforce and Disney

Can any of the company-specific risk be diversified away by investing in both Salesforce and 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 Salesforce and Disney into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Salesforce and Walt Disney, you can compare the effects of market volatilities on Salesforce and 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 Salesforce with a short position of Disney. Check out your portfolio center. Please also check ongoing floating volatility patterns of Salesforce and Disney.

Diversification Opportunities for Salesforce and Disney

0.7

Correlation Coefficient

Salesforce  Disney

Poor diversification

The 3 months correlation between Salesforce and Disney is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Salesforce and Walt Disney in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walt Disney and Salesforce 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 Salesforce are associated (or correlated) with 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 Salesforce i.e., Salesforce and Disney go up and down completely randomly.

Pair Corralation between Salesforce and Disney

Considering the 90-day investment horizon Salesforce is expected to generate 1.15 times more return on investment than Disney. However, Salesforce is 1.15 times more volatile than Walt Disney. It trades about 0.05 of its potential returns per unit of risk. Walt Disney is currently generating about 0.01 per unit of risk. If you would invest  17,734  in Salesforce on January 20, 2024 and sell it today you would earn a total of  9,458  from holding Salesforce or generate 53.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Salesforce  vs.  Walt Disney

Salesforce

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Salesforce has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Salesforce is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Walt Disney

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, Disney unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Salesforce and Disney

The main advantage of trading using opposite Salesforce and Disney positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Salesforce position performs unexpectedly, 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 Disney will offset losses from the drop in Disney's long position.

The idea behind Salesforce 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.

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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.