Correlation Between VARIOUS EATERIES and McDonalds

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

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

Diversification Opportunities for VARIOUS EATERIES and McDonalds

-0.38

Correlation Coefficient

VARIOUS EATERIES  McDonalds

Very good diversification

The 3 months correlation between VARIOUS and McDonalds is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding VARIOUS EATERIES LS and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and VARIOUS EATERIES 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 VARIOUS EATERIES LS 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 VARIOUS EATERIES i.e., VARIOUS EATERIES and McDonalds go up and down completely randomly.

Pair Corralation between VARIOUS EATERIES and McDonalds

Assuming the 90 days horizon VARIOUS EATERIES LS is expected to under-perform the McDonalds. In addition to that, VARIOUS EATERIES is 3.32 times more volatile than McDonalds. It trades about -0.13 of its total potential returns per unit of risk. McDonalds is currently generating about 0.01 per unit of volatility. If you would invest  28,396  in McDonalds on December 31, 2024 and sell it today you would earn a total of  99.00  from holding McDonalds or generate 0.35% return on investment over 90 days.

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

VARIOUS EATERIES LS  vs.  McDonalds

VARIOUS EATERIES

Risk-Adjusted Performance

Very Weak

Over the last 90 days VARIOUS EATERIES LS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in May 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

McDonalds

Risk-Adjusted Performance

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 latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with VARIOUS EATERIES and McDonalds

The main advantage of trading using opposite VARIOUS EATERIES and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VARIOUS EATERIES 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 VARIOUS EATERIES LS 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.