Correlation Between McDonalds and Golden Entertainment

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

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

Diversification Opportunities for McDonalds and Golden Entertainment

-0.34

Correlation Coefficient

McDonalds  Golden Entertainment

Very good diversification

The 3 months correlation between McDonalds and Golden is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Golden Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Golden Entertainment 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 Golden Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Golden Entertainment has no effect on the direction of McDonalds i.e., McDonalds and Golden Entertainment go up and down completely randomly.

Pair Corralation between McDonalds and Golden Entertainment

Considering the 90-day investment horizon McDonalds is expected to generate 2.29 times less return on investment than Golden Entertainment. But when comparing it to its historical volatility, McDonalds is 1.85 times less risky than Golden Entertainment. It trades about 0.05 of its potential returns per unit of risk. Golden Entertainment is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,138  in Golden Entertainment on August 31, 2024 and sell it today you would earn a total of  236.00  from holding Golden Entertainment or generate 7.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

McDonalds  vs.  Golden Entertainment

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 new stock price tumult, may contribute to shorter-term losses for the shareholders.

Golden Entertainment

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Golden Entertainment are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical and fundamental indicators, Golden Entertainment may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with McDonalds and Golden Entertainment

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

The idea behind McDonalds and Golden Entertainment 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.