Correlation Between McDonalds and Bagger Daves

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

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

Diversification Opportunities for McDonalds and Bagger Daves

0.25

Correlation Coefficient

McDonalds  Bagger Daves

Modest diversification

The 3 months correlation between McDonalds and Bagger is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Bagger Daves Burger in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bagger Daves Burger 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 Bagger Daves. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bagger Daves Burger has no effect on the direction of McDonalds i.e., McDonalds and Bagger Daves go up and down completely randomly.

Pair Corralation between McDonalds and Bagger Daves

Considering the 90-day investment horizon McDonalds is expected to under-perform the Bagger Daves. But the stock apears to be less risky and, when comparing its historical volatility, McDonalds is 5.56 times less risky than Bagger Daves. The stock trades about -0.25 of its potential returns per unit of risk. The Bagger Daves Burger is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  5.51  in Bagger Daves Burger on October 22, 2024 and sell it today you would earn a total of  0.67  from holding Bagger Daves Burger or generate 12.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	90.0%
Values	Daily Returns

McDonalds  vs.  Bagger Daves Burger

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 latest fragile performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Bagger Daves Burger

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bagger Daves Burger has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Bagger Daves is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with McDonalds and Bagger Daves

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

The idea behind McDonalds and Bagger Daves Burger 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.