Correlation Between NEW MILLENNIUM and McDonalds

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

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

Diversification Opportunities for NEW MILLENNIUM and McDonalds

-0.28

Correlation Coefficient

NEW MILLENNIUM  McDonalds

Very good diversification

The 3 months correlation between NEW and McDonalds is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding NEW MILLENNIUM IRON and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and NEW MILLENNIUM 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 NEW MILLENNIUM IRON 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 NEW MILLENNIUM i.e., NEW MILLENNIUM and McDonalds go up and down completely randomly.

Pair Corralation between NEW MILLENNIUM and McDonalds

Assuming the 90 days trading horizon NEW MILLENNIUM IRON is expected to generate 2.11 times more return on investment than McDonalds. However, NEW MILLENNIUM is 2.11 times more volatile than McDonalds. It trades about 0.1 of its potential returns per unit of risk. McDonalds is currently generating about -0.09 per unit of risk. If you would invest  740.00  in NEW MILLENNIUM IRON on October 22, 2024 and sell it today you would earn a total of  25.00  from holding NEW MILLENNIUM IRON or generate 3.38% return on investment over 90 days.

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

NEW MILLENNIUM IRON  vs.  McDonalds

NEW MILLENNIUM IRON

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NEW MILLENNIUM IRON are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, NEW MILLENNIUM exhibited solid returns over the last few months and may actually be approaching a breakup point.

McDonalds

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days McDonalds has generated negative risk-adjusted returns adding no value to investors with long positions. 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 NEW MILLENNIUM and McDonalds

The main advantage of trading using opposite NEW MILLENNIUM and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NEW MILLENNIUM 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 NEW MILLENNIUM IRON 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.

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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 Stocks Directory module to find actively traded stocks across global markets.