Correlation Between Dutch Bros and McDonalds

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

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

Diversification Opportunities for Dutch Bros and McDonalds

0.52

Correlation Coefficient

Dutch Bros  McDonalds

Very weak diversification

The 3 months correlation between Dutch and McDonalds is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Dutch Bros and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and Dutch Bros 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 Dutch Bros 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 Dutch Bros i.e., Dutch Bros and McDonalds go up and down completely randomly.

Pair Corralation between Dutch Bros and McDonalds

Given the investment horizon of 90 days Dutch Bros is expected to generate 3.9 times more return on investment than McDonalds. However, Dutch Bros is 3.9 times more volatile than McDonalds. It trades about 0.08 of its potential returns per unit of risk. McDonalds is currently generating about 0.11 per unit of risk. If you would invest  5,255  in Dutch Bros on December 29, 2024 and sell it today you would earn a total of  997.00  from holding Dutch Bros or generate 18.97% return on investment over 90 days.

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

Dutch Bros  vs.  McDonalds

Dutch Bros

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dutch Bros are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Dutch Bros unveiled solid returns over the last few months and may actually be approaching a breakup point.

McDonalds

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in McDonalds are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental indicators, McDonalds may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Dutch Bros and McDonalds

The main advantage of trading using opposite Dutch Bros and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dutch Bros 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 Dutch Bros 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.