Correlation Between McDonalds and Innovator MSCI

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

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

Diversification Opportunities for McDonalds and Innovator MSCI

0.8

Correlation Coefficient

McDonalds  Innovator MSCI

Very poor diversification

The 3 months correlation between McDonalds and Innovator is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Innovator MSCI EAFE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator MSCI EAFE 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 Innovator MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator MSCI EAFE has no effect on the direction of McDonalds i.e., McDonalds and Innovator MSCI go up and down completely randomly.

Pair Corralation between McDonalds and Innovator MSCI

Considering the 90-day investment horizon McDonalds is expected to generate about the same return on investment as Innovator MSCI EAFE. However, McDonalds is 2.25 times more volatile than Innovator MSCI EAFE. It trades about 0.08 of its potential returns per unit of risk. Innovator MSCI EAFE is currently producing about 0.18 per unit of risk. If you would invest  2,668  in Innovator MSCI EAFE on December 21, 2024 and sell it today you would earn a total of  171.20  from holding Innovator MSCI EAFE or generate 6.42% return on investment over 90 days.

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

McDonalds  vs.  Innovator MSCI EAFE

McDonalds

Risk-Adjusted Performance

Modest

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

Innovator MSCI EAFE

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Innovator MSCI EAFE are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Innovator MSCI may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with McDonalds and Innovator MSCI

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

The idea behind McDonalds and Innovator MSCI EAFE 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.