Correlation Between McDonalds and Goldman Sachs

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

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

Diversification Opportunities for McDonalds and Goldman Sachs

0.65

Correlation Coefficient

McDonalds  Goldman Sachs

Poor diversification

The 3 months correlation between McDonalds and Goldman is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Goldman Sachs MarketBeta in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goldman Sachs MarketBeta 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 Goldman Sachs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goldman Sachs MarketBeta has no effect on the direction of McDonalds i.e., McDonalds and Goldman Sachs go up and down completely randomly.

Pair Corralation between McDonalds and Goldman Sachs

Considering the 90-day investment horizon McDonalds is expected to generate 1.07 times more return on investment than Goldman Sachs. However, McDonalds is 1.07 times more volatile than Goldman Sachs MarketBeta. It trades about -0.2 of its potential returns per unit of risk. Goldman Sachs MarketBeta is currently generating about -0.28 per unit of risk. If you would invest  29,610  in McDonalds on October 12, 2024 and sell it today you would lose (920.00) from holding McDonalds or give up 3.11% of portfolio value over 90 days.

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

McDonalds  vs.  Goldman Sachs MarketBeta

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.

Goldman Sachs MarketBeta

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Goldman Sachs MarketBeta has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

Pair Trading with McDonalds and Goldman Sachs

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

The idea behind McDonalds and Goldman Sachs MarketBeta 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.