Buying Disney Stock Before Animated Movie Releases, A Strategy Superior To Dollar Cost Averaging For DIS Investors

Summary

  • I performed a statistical study on how Disney's stock changes close to its animated movie releases.
  • The results revealed a somewhat consistent increase one month after an animated movie release.
  • Digging deeper into the data revealed a trading strategy that would produce 3.6% gains on each trade.
  • Rather than applying dollar cost averaging, the company's investors should buy DIS stock 30 days before a movie release to optimize the price at which they acquire the stock.

Introduction

In my past study on Apple (AAPL) and how its stock price reacts to Apple events (such as new product announcement), I found a statistical connection: Apple stock declines on the day of and the days after an Apple event. One of my readers applied the strategy and turned a profit:

"Retired One" summarizes the meaning of such studies well: While Seeking Alpha is a community of investors, sometimes applying what seems to be short-term trading strategies to long-term investments can pay off. Many of us implicitly know this but don't admit it when we apply dollar cost averaging to our investments. In dollar cost averaging, we dedicate a fixed amount of capital to a fixed investment at a fixed time.

But I've been saying for a while that, while dollar cost averaging is a statistically accurate method of ensuring that you buy most of your shares at a discount, using cyclical data (what Retired One calls "history repeating itself") to define your entry points can prove to be more optimal than dollar cost averaging.

In my last study, many people commented. I am taking two of these comments into consideration for a new study. One comment was a request to repeat the study on Disney's (NYSE:DIS) stock and movie releases:

Another comment was asking about the expected returns based on my strategy. In this current study, I will take both of these comments into account.

The Study

Disney movie releases number too many for me to perform the data entry in a timely fashion. See the list of releases here.

Thus, I have limited the list to fulfill two criteria:

  1. The movie was released in the past 10 years.
  2. The movie is an animated film (not live action or documentary, etc.)

In anticipation of a new animated Disney release, "The Good Dinosaur," on November 25, this study is a timely one. Below is the list of movies included in this study:

Movie

Release date

My Neighbor Totoro

October 23, 2005

Chicken Little

November 4, 2005

The Wild

April 14, 2006

Cars

June 9, 2006

The Nightmare before Christmas 3D

October 27, 2006

Meet the Robinsons

March 30, 2007

Ratatouille

June 29, 2007

WALL-E

June 27, 2008

Roadside Romeo

October 24, 2008

Bolt

November 21, 2008

Up

May 29, 2009

Ponyo

August 14, 2009

A Christmas Carol

November 6, 2009

The Princess and the Frog

December 11, 2009

Toy Story 3

June 18, 2010

Tales from Earthsea

August 13, 2010

Tangled

November 24, 2010

Mars Needs Moms

March 11, 2011

Cars 2

June 24, 2011

Winnie the Pooh

July 15, 2011

The Secret World of Arrietty

February 17, 2012

Arjun

May 25, 2012

Brave

June 22, 2012

Frankenweenie

October 5, 2012

Wreck-It Ralph

November 2, 2012

Monsters University

June 21, 2013

Planes

August 9, 2013

Frozen

November 27, 2013

Planes 2

July 19, 2014

Big Hero 6

November 7, 2014

Inside Out

June 19, 2015

The main idea of this study is to find any consistent changes in the stock price of Disney around the time of animated movie releases. If we can find such consistent changes, we can better position our investments in DIS. For example, if we should find that DIS rises before a movie release and falls afterwards, we can sell our shares before the release and buy them back afterward, as Retired One did with AAPL stock.

The hypotheses for this study, as per the request, follow:

H0: DIS presents no statistically consistent changes before or after an animated movie releases

HA: DIS presents at least one statistically consistent change before or after an animated movie release

To test these hypotheses, I am including DIS stock price at five dates:

  • One month before the release
  • Five days before the release
  • The day of or after the release (many movies are released on the weekend)
  • Five days after the release
  • One month after the release

The Results

I ran paired t-tests on DIS stock price changes, using the release date as a benchmark. The results follow:

The results follow:

Period

p-value

1 month before the event

0.7267

5 days before the event

0.4989

5 days after the event

0.3424

1 month after the event

0.0762

Interpreting the Results for Trading Strategies

At a 5% alpha level, none of the results were statistically significant. However, the p-value for 1 month after the event was close to 5%. Some studies use alpha levels of 10%, which would make this a statistically significant result. I wondered if the inclusion of the movies released during the 2007-2009 bear market was inflating the p-value for the 1-month-after stock price, so I removed those movies and re-ran the analysis. However, the p-value remained roughly the same, at around 7%. Removing the bear-market releases, however, did unveil another period with a close-to-alpha p-value: The 1-month-before-a-release value had a p-value of 0.0599.

Taking these factors into account, I decided to do a follow-up study on this period to see how you would fare should you space trades around Disney animated movie releases. Thus, I looked at the returns for such a strategy. The strategy is as follows:

Buying DIS one month before an animated film release. Sell one month after.

The results of this strategy follow:

Overall, including the bear market, you would have gained an average of 1.9% ROI per trade. For individual trades, your max loss would have been 30% (during the bear market) while your max gain would be 22%, making this a risky strategy with more downside than upside but overall statistically sound if repeated as per dollar cost averaging.

However, if you were to avoid the bear market entirely, your results would be much better. On average, you would gain 3.6% per trade. Your max loss would be 13% while your max gain would be 22%. Now the upside is looking much better.

Using This Info For Investing In DIS

Assuming we don't hit another bear market soon, applying the dollar cost averaging method to DIS with a "twist" should bring hefty yields. DIS released 18 animated movies in 2015 (one is set for November, yet to be released). Eighteen is not much larger than 12, which is the number of months in a year. If your dollar cost averaging strategy is to buy DIS once per month, you might want to reconsider.

Instead, divide your yearly planned investment capital for DIS by 18. If you plan on investing $10,000 in DIS per year, for example, that gives you $555.56. Let this be your investment money for the company. Invest this capital in Disney 30 days before an animated film release and expect a 3.6% return after 2 months, giving you $575.56 worth of stock for your $555.56, on average. And remember, this will be compounded as DIS releases more movies (all things being equal).

This isn't "buying the dip." Indeed, DIS doesn't really dip. In the past 10 years, the only "dips" have been during the bear market of 2007-2009 and September 11:

Instead, what we are doing here is finding the best time to perform dollar cost averaging, which is a statistically reliable investment strategy. But rather than arbitrarily setting our investment time at a date on a calendar, we are using statistical information to find better buying points. In DIS's case, that buying point is 30 days before an animated film release.

And right now we stand one month ahead of a new DIS animated release. Will you be buying DIS?

Request a Statistical Study

If you would like for me to run a statistical study on a specific aspect of a specific stock, commodity, or market, just request so in the comments section below. Alternatively, message me or email me with your request.

This article was written by

Damon Verial profile picture
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Damon Verial is a statistical analyst who uses his skills to research stocks, options, and investment strategies. In addition, Damon is the writer of Copy My Trades, a trade-alert, subscription-based newsletter, available at his personal website. He is also the writer of Exposing Earnings, an in-depth earnings prediction service here on Seeking Alpha.

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Damon makes his living as a gap trader, an earnings trader, and an interday trader. In his free time, he writes for Seeking Alpha, where he focuses on seasonal investing, market timing, and earnings analyses.

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Damon has written several successful stock analysis algorithms, including algorithms that can predict gap closure, intraday patterns, and news overreactions. They will soon be publically available for subscribers.

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Damon’s undergraduate education was in statistics and mathematics at the University of Washington; his graduate education was in psychology at National Taiwan University. He currently lives in Fukuoka, Japan.


Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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