Correlation Between Boston Pizza and McDonalds Corp

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

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

Diversification Opportunities for Boston Pizza and McDonalds Corp

0.04

Correlation Coefficient

Boston Pizza  McDonalds Corp

Significant diversification

The 3 months correlation between Boston and McDonalds is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Boston Pizza Royalties and McDonalds Corp CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds Corp CDR and Boston Pizza 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 Boston Pizza Royalties are associated (or correlated) with McDonalds Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McDonalds Corp CDR has no effect on the direction of Boston Pizza i.e., Boston Pizza and McDonalds Corp go up and down completely randomly.

Pair Corralation between Boston Pizza and McDonalds Corp

Assuming the 90 days trading horizon Boston Pizza Royalties is expected to generate 0.57 times more return on investment than McDonalds Corp. However, Boston Pizza Royalties is 1.77 times less risky than McDonalds Corp. It trades about 0.06 of its potential returns per unit of risk. McDonalds Corp CDR is currently generating about -0.05 per unit of risk. If you would invest  1,731  in Boston Pizza Royalties on October 10, 2024 and sell it today you would earn a total of  36.00  from holding Boston Pizza Royalties or generate 2.08% return on investment over 90 days.

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

Boston Pizza Royalties  vs.  McDonalds Corp CDR

Boston Pizza Royalties

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Boston Pizza Royalties are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Boston Pizza is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

McDonalds Corp CDR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days McDonalds Corp CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, McDonalds Corp is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Boston Pizza and McDonalds Corp

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

The idea behind Boston Pizza Royalties and McDonalds Corp CDR 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.