Correlation Between Cars and McDonalds
Can any of the company-specific risk be diversified away by investing in both Cars 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 Cars and McDonalds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cars Inc and McDonalds, you can compare the effects of market volatilities on Cars 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 Cars with a short position of McDonalds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cars and McDonalds.
Diversification Opportunities for Cars and McDonalds
Weak diversification
The 3 months correlation between Cars and McDonalds is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Cars Inc and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and Cars 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 Cars 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 Cars i.e., Cars and McDonalds go up and down completely randomly.
Pair Corralation between Cars and McDonalds
Assuming the 90 days horizon Cars Inc is expected to generate 2.75 times more return on investment than McDonalds. However, Cars is 2.75 times more volatile than McDonalds. It trades about 0.03 of its potential returns per unit of risk. McDonalds is currently generating about 0.04 per unit of risk. If you would invest 1,380 in Cars Inc on October 8, 2024 and sell it today you would earn a total of 250.00 from holding Cars Inc or generate 18.12% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Cars Inc vs. McDonalds
Performance |
Timeline |
Cars Inc |
McDonalds |
Cars and McDonalds Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Cars and McDonalds
The main advantage of trading using opposite Cars and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cars 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.Cars vs. Penske Automotive Group | Cars vs. Superior Plus Corp | Cars vs. NMI Holdings | Cars vs. SIVERS SEMICONDUCTORS AB |
McDonalds vs. HOCHSCHILD MINING | McDonalds vs. LPKF Laser Electronics | McDonalds vs. Methode Electronics | McDonalds vs. FRACTAL GAMING GROUP |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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