Correlation Between McDonalds and Baron Capital

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

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

Diversification Opportunities for McDonalds and Baron Capital

-0.35

Correlation Coefficient

McDonalds  Baron Capital

Very good diversification

The 3 months correlation between McDonalds and Baron is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Baron Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baron Capital 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 Baron Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baron Capital has no effect on the direction of McDonalds i.e., McDonalds and Baron Capital go up and down completely randomly.

Pair Corralation between McDonalds and Baron Capital

Considering the 90-day investment horizon McDonalds is expected to generate 50.16 times less return on investment than Baron Capital. But when comparing it to its historical volatility, McDonalds is 30.53 times less risky than Baron Capital. It trades about 0.06 of its potential returns per unit of risk. Baron Capital is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  0.04  in Baron Capital on September 3, 2024 and sell it today you would lose (0.01) from holding Baron Capital or give up 25.0% of portfolio value over 90 days.

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

McDonalds  vs.  Baron Capital

McDonalds

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in McDonalds are ranked lower than 4 (%) 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 recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Baron Capital

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Baron Capital are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, Baron Capital reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with McDonalds and Baron Capital

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

The idea behind McDonalds and Baron Capital 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.