Correlation Between Cordia and McDonalds

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

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

Diversification Opportunities for Cordia and McDonalds

0.63

Correlation Coefficient

Cordia  McDonalds

Poor diversification

The 3 months correlation between Cordia and McDonalds is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Cordia and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and Cordia 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 Cordia 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 Cordia i.e., Cordia and McDonalds go up and down completely randomly.

Pair Corralation between Cordia and McDonalds

Given the investment horizon of 90 days Cordia is expected to under-perform the McDonalds. In addition to that, Cordia is 19.66 times more volatile than McDonalds. It trades about -0.17 of its total potential returns per unit of risk. McDonalds is currently generating about -0.1 per unit of volatility. If you would invest  29,442  in McDonalds on October 26, 2024 and sell it today you would lose (911.00) from holding McDonalds or give up 3.09% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	87.5%
Values	Daily Returns

Cordia  vs.  McDonalds

Cordia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cordia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

McDonalds

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days McDonalds has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Cordia and McDonalds

The main advantage of trading using opposite Cordia and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cordia 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 Cordia 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.