Correlation Between Omni Small and McDonalds

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

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

Diversification Opportunities for Omni Small and McDonalds

-0.19

Correlation Coefficient

Omni Small  McDonalds

Good diversification

The 3 months correlation between Omni and McDonalds is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Omni Small Cap Value and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and Omni Small 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 Omni Small Cap Value 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 Omni Small i.e., Omni Small and McDonalds go up and down completely randomly.

Pair Corralation between Omni Small and McDonalds

Assuming the 90 days horizon Omni Small Cap Value is expected to under-perform the McDonalds. In addition to that, Omni Small is 2.44 times more volatile than McDonalds. It trades about -0.21 of its total potential returns per unit of risk. McDonalds is currently generating about 0.15 per unit of volatility. If you would invest  28,936  in McDonalds on September 19, 2024 and sell it today you would earn a total of  672.00  from holding McDonalds or generate 2.32% return on investment over 90 days.

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

Omni Small Cap Value  vs.  McDonalds

Omni Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Omni Small Cap Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Omni Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

McDonalds

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in McDonalds are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, McDonalds is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Omni Small and McDonalds

The main advantage of trading using opposite Omni Small and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Omni Small 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 Omni Small Cap Value 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.