Correlation Between McDonalds and IShares Trust

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

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

Diversification Opportunities for McDonalds and IShares Trust

0.79

Correlation Coefficient

McDonalds  IShares Trust

Poor diversification

The 3 months correlation between McDonalds and IShares is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and iShares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Trust 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 IShares Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Trust has no effect on the direction of McDonalds i.e., McDonalds and IShares Trust go up and down completely randomly.

Pair Corralation between McDonalds and IShares Trust

Considering the 90-day investment horizon McDonalds is expected to generate 2.61 times more return on investment than IShares Trust. However, McDonalds is 2.61 times more volatile than iShares Trust . It trades about 0.03 of its potential returns per unit of risk. iShares Trust is currently generating about 0.05 per unit of risk. If you would invest  26,693  in McDonalds on December 20, 2024 and sell it today you would earn a total of  3,999  from holding McDonalds or generate 14.98% return on investment over 90 days.

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

McDonalds  vs.  iShares Trust

McDonalds

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in McDonalds are ranked lower than 5 (%) 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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

iShares Trust

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Trust are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable fundamental indicators, IShares Trust is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with McDonalds and IShares Trust

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

The idea behind McDonalds and iShares Trust 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.