Correlation Between McDonalds and Invesco Investment

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

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

Diversification Opportunities for McDonalds and Invesco Investment

0.38

Correlation Coefficient

McDonalds  Invesco Investment

Weak diversification

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

Pair Corralation between McDonalds and Invesco Investment

Considering the 90-day investment horizon McDonalds is expected to generate 4.23 times more return on investment than Invesco Investment. However, McDonalds is 4.23 times more volatile than Invesco Investment Grade. It trades about 0.03 of its potential returns per unit of risk. Invesco Investment Grade is currently generating about 0.07 per unit of risk. If you would invest  25,708  in McDonalds on October 12, 2024 and sell it today you would earn a total of  2,982  from holding McDonalds or generate 11.6% return on investment over 90 days.

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

McDonalds  vs.  Invesco Investment Grade

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.

Invesco Investment Grade

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco Investment Grade has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Invesco Investment is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with McDonalds and Invesco Investment

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

The idea behind McDonalds and Invesco Investment Grade 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..