Correlation Between McDonalds and JD Bancshares

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

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

Diversification Opportunities for McDonalds and JD Bancshares

-0.43

Correlation Coefficient

McDonalds  JD Bancshares

Very good diversification

The 3 months correlation between McDonalds and JDVB is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and JD Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JD Bancshares 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 JD Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JD Bancshares has no effect on the direction of McDonalds i.e., McDonalds and JD Bancshares go up and down completely randomly.

Pair Corralation between McDonalds and JD Bancshares

Considering the 90-day investment horizon McDonalds is expected to generate 1.76 times less return on investment than JD Bancshares. But when comparing it to its historical volatility, McDonalds is 4.25 times less risky than JD Bancshares. It trades about 0.03 of its potential returns per unit of risk. JD Bancshares is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,773  in JD Bancshares on September 21, 2024 and sell it today you would lose (323.00) from holding JD Bancshares or give up 11.65% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	72.12%
Values	Daily Returns

McDonalds  vs.  JD Bancshares

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 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.

JD Bancshares

Risk-Adjusted Performance

14 of 100

Good

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

Pair Trading with McDonalds and JD Bancshares

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

The idea behind McDonalds and JD Bancshares 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.

Check out your portfolio center.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.