Correlation Between Arhaus and McDonalds

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

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

Diversification Opportunities for Arhaus and McDonalds

0.29

Correlation Coefficient

Arhaus  McDonalds

Modest diversification

The 3 months correlation between Arhaus and McDonalds is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Arhaus Inc and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and Arhaus 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 Arhaus Inc 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 Arhaus i.e., Arhaus and McDonalds go up and down completely randomly.

Pair Corralation between Arhaus and McDonalds

Given the investment horizon of 90 days Arhaus Inc is expected to under-perform the McDonalds. In addition to that, Arhaus is 4.44 times more volatile than McDonalds. It trades about -0.24 of its total potential returns per unit of risk. McDonalds is currently generating about -0.2 per unit of volatility. If you would invest  29,610  in McDonalds on October 12, 2024 and sell it today you would lose (920.00) from holding McDonalds or give up 3.11% of portfolio value over 90 days.

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

Arhaus Inc  vs.  McDonalds

Arhaus Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arhaus Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical indicators, Arhaus is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

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. In spite of latest fragile performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Arhaus and McDonalds

The main advantage of trading using opposite Arhaus and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arhaus 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 Arhaus Inc 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.