Correlation Between Highway Holdings and McDonalds

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

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

Diversification Opportunities for Highway Holdings and McDonalds

-0.5

Correlation Coefficient

Highway Holdings  McDonalds

Very good diversification

The 3 months correlation between Highway and McDonalds is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Highway Holdings Limited and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and Highway Holdings 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 Highway Holdings Limited 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 Highway Holdings i.e., Highway Holdings and McDonalds go up and down completely randomly.

Pair Corralation between Highway Holdings and McDonalds

Given the investment horizon of 90 days Highway Holdings is expected to generate 1.47 times less return on investment than McDonalds. In addition to that, Highway Holdings is 2.75 times more volatile than McDonalds. It trades about 0.01 of its total potential returns per unit of risk. McDonalds is currently generating about 0.04 per unit of volatility. If you would invest  25,260  in McDonalds on December 1, 2024 and sell it today you would earn a total of  5,573  from holding McDonalds or generate 22.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.6%
Values	Daily Returns

Highway Holdings Limited  vs.  McDonalds

Highway Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Highway Holdings Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical indicators, Highway Holdings is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

McDonalds

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in McDonalds are ranked lower than 6 (%) 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 Highway Holdings and McDonalds

The main advantage of trading using opposite Highway Holdings and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Highway Holdings 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 Highway Holdings Limited 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.