Correlation Between McDonalds and Fidelity Large

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

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

Diversification Opportunities for McDonalds and Fidelity Large

-0.38

Correlation Coefficient

McDonalds  Fidelity Large

Very good diversification

The 3 months correlation between McDonalds and Fidelity is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Fidelity Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Large Cap 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 Fidelity Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Large Cap has no effect on the direction of McDonalds i.e., McDonalds and Fidelity Large go up and down completely randomly.

Pair Corralation between McDonalds and Fidelity Large

Considering the 90-day investment horizon McDonalds is expected to generate 3.37 times less return on investment than Fidelity Large. In addition to that, McDonalds is 1.18 times more volatile than Fidelity Large Cap. It trades about 0.04 of its total potential returns per unit of risk. Fidelity Large Cap is currently generating about 0.15 per unit of volatility. If you would invest  1,786  in Fidelity Large Cap on September 20, 2024 and sell it today you would earn a total of  342.00  from holding Fidelity Large Cap or generate 19.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	28.48%
Values	Daily Returns

McDonalds  vs.  Fidelity Large Cap

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.

Fidelity Large Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fidelity Large Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Fidelity Large 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 Fidelity Large

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

The idea behind McDonalds and Fidelity Large Cap 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.