Correlation Between McDonalds and Arhaus

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

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

Diversification Opportunities for McDonalds and Arhaus

-0.37

Correlation Coefficient

McDonalds  Arhaus

Very good diversification

The 3 months correlation between McDonalds and Arhaus is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Arhaus Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arhaus Inc and McDonalds 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 McDonalds are associated (or correlated) with Arhaus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arhaus Inc has no effect on the direction of McDonalds i.e., McDonalds and Arhaus go up and down completely randomly.

Pair Corralation between McDonalds and Arhaus

Considering the 90-day investment horizon McDonalds is expected to generate 1.36 times less return on investment than Arhaus. But when comparing it to its historical volatility, McDonalds is 3.57 times less risky than Arhaus. It trades about 0.03 of its potential returns per unit of risk. Arhaus Inc is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,404  in Arhaus Inc on October 27, 2024 and sell it today you would lose (169.00) from holding Arhaus Inc or give up 12.04% of portfolio value over 90 days.

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

McDonalds  vs.  Arhaus Inc

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.

Arhaus Inc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Arhaus Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical indicators, Arhaus unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with McDonalds and Arhaus

The main advantage of trading using opposite McDonalds and Arhaus positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, Arhaus 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 Arhaus will offset losses from the drop in Arhaus' long position.

The idea behind McDonalds and Arhaus Inc 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.