Correlation Between Salesforce and McDonalds Corp

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

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

Diversification Opportunities for Salesforce and McDonalds Corp

-0.33

Correlation Coefficient

Salesforce  McDonalds Corp

Very good diversification

The 3 months correlation between Salesforce and McDonalds is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Salesforce 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 Salesforce 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 Salesforce 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 Salesforce i.e., Salesforce and McDonalds Corp go up and down completely randomly.

Pair Corralation between Salesforce and McDonalds Corp

Considering the 90-day investment horizon Salesforce is expected to generate 2.0 times more return on investment than McDonalds Corp. However, Salesforce is 2.0 times more volatile than McDonalds Corp CDR. It trades about 0.09 of its potential returns per unit of risk. McDonalds Corp CDR is currently generating about 0.03 per unit of risk. If you would invest  14,765  in Salesforce on October 7, 2024 and sell it today you would earn a total of  18,525  from holding Salesforce or generate 125.47% return on investment over 90 days.

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

Salesforce  vs.  McDonalds Corp CDR

Salesforce

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Salesforce are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Salesforce displayed solid returns over the last few months and may actually be approaching a breakup point.

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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Salesforce and McDonalds Corp

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

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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.