Correlation Between Restaurant Brands and McDonalds

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

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

Diversification Opportunities for Restaurant Brands and McDonalds

0.41

Correlation Coefficient

Restaurant Brands  McDonalds

Very weak diversification

The 3 months correlation between Restaurant and McDonalds is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Restaurant Brands Internationa and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and Restaurant Brands 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 Restaurant Brands International are associated (or correlated) with McDonalds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McDonalds has no effect on the direction of Restaurant Brands i.e., Restaurant Brands and McDonalds go up and down completely randomly.

Pair Corralation between Restaurant Brands and McDonalds

Assuming the 90 days horizon Restaurant Brands is expected to generate 1.3 times less return on investment than McDonalds. In addition to that, Restaurant Brands is 1.31 times more volatile than McDonalds. It trades about 0.02 of its total potential returns per unit of risk. McDonalds is currently generating about 0.04 per unit of volatility. If you would invest  23,614  in McDonalds on September 23, 2024 and sell it today you would earn a total of  4,536  from holding McDonalds or generate 19.21% return on investment over 90 days.

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

Restaurant Brands Internationa  vs.  McDonalds

Restaurant Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Restaurant Brands International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Restaurant Brands is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

McDonalds

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in McDonalds are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, McDonalds is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Restaurant Brands and McDonalds

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

The idea behind Restaurant Brands International and McDonalds 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.