Correlation Between McDonalds and Forum Energy

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

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

Diversification Opportunities for McDonalds and Forum Energy

0.71

Correlation Coefficient

McDonalds  Forum Energy

Poor diversification

The 3 months correlation between McDonalds and Forum is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Forum Energy Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Forum Energy Metals 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 Forum Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Forum Energy Metals has no effect on the direction of McDonalds i.e., McDonalds and Forum Energy go up and down completely randomly.

Pair Corralation between McDonalds and Forum Energy

Considering the 90-day investment horizon McDonalds is expected to generate 1.84 times less return on investment than Forum Energy. But when comparing it to its historical volatility, McDonalds is 8.16 times less risky than Forum Energy. It trades about 0.06 of its potential returns per unit of risk. Forum Energy Metals is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  6.00  in Forum Energy Metals on September 3, 2024 and sell it today you would lose (1.00) from holding Forum Energy Metals or give up 16.67% of portfolio value over 90 days.

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

McDonalds  vs.  Forum Energy Metals

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.

Forum Energy Metals

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Forum Energy Metals are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Forum Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with McDonalds and Forum Energy

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

The idea behind McDonalds and Forum Energy Metals 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.