Correlation Between Aggressive Investors and McDonalds

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

By analyzing existing cross correlation between Aggressive Investors 1 and McDonalds, you can compare the effects of market volatilities on Aggressive Investors 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 Aggressive Investors with a short position of McDonalds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aggressive Investors and McDonalds.

Diversification Opportunities for Aggressive Investors and McDonalds

-0.24

Correlation Coefficient

Aggressive Investors  McDonalds

Very good diversification

The 3 months correlation between Aggressive and McDonalds is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Aggressive Investors 1 and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and Aggressive Investors 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 Aggressive Investors 1 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 Aggressive Investors i.e., Aggressive Investors and McDonalds go up and down completely randomly.

Pair Corralation between Aggressive Investors and McDonalds

Assuming the 90 days horizon Aggressive Investors 1 is expected to generate 0.79 times more return on investment than McDonalds. However, Aggressive Investors 1 is 1.27 times less risky than McDonalds. It trades about 0.18 of its potential returns per unit of risk. McDonalds is currently generating about 0.03 per unit of risk. If you would invest  9,087  in Aggressive Investors 1 on September 19, 2024 and sell it today you would earn a total of  915.00  from holding Aggressive Investors 1 or generate 10.07% return on investment over 90 days.

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

Aggressive Investors 1  vs.  McDonalds

Aggressive Investors

Risk-Adjusted Performance

14 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aggressive Investors 1 are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Aggressive Investors may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 Aggressive Investors and McDonalds

The main advantage of trading using opposite Aggressive Investors and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aggressive Investors 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 Aggressive Investors 1 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.

Check out your portfolio center.

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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.