Correlation Between McDonalds and EGF Theramed

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

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

Diversification Opportunities for McDonalds and EGF Theramed

-0.37

Correlation Coefficient

McDonalds  EGF Theramed

Very good diversification

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

Pair Corralation between McDonalds and EGF Theramed

Considering the 90-day investment horizon McDonalds is expected to generate 29.6 times less return on investment than EGF Theramed. But when comparing it to its historical volatility, McDonalds is 29.81 times less risky than EGF Theramed. It trades about 0.09 of its potential returns per unit of risk. EGF Theramed Health is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  10.00  in EGF Theramed Health on December 28, 2024 and sell it today you would lose (5.10) from holding EGF Theramed Health or give up 51.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

McDonalds  vs.  EGF Theramed Health

McDonalds

Risk-Adjusted Performance

OK

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 unfluctuating fundamental indicators, McDonalds may actually be approaching a critical reversion point that can send shares even higher in April 2025.

EGF Theramed Health

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in EGF Theramed Health are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical indicators, EGF Theramed reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with McDonalds and EGF Theramed

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

The idea behind McDonalds and EGF Theramed Health 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.