Correlation Between McDonalds and Sovos Brands

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

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

Diversification Opportunities for McDonalds and Sovos Brands

-0.36

Correlation Coefficient

McDonalds  Sovos Brands

Very good diversification

The 3 months correlation between McDonalds and Sovos is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Sovos Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sovos Brands 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 Sovos Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sovos Brands has no effect on the direction of McDonalds i.e., McDonalds and Sovos Brands go up and down completely randomly.

Pair Corralation between McDonalds and Sovos Brands

If you would invest  29,506  in McDonalds on September 20, 2024 and sell it today you would earn a total of  102.00  from holding McDonalds or generate 0.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	1.59%
Values	Daily Returns

McDonalds  vs.  Sovos Brands

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.

Sovos Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sovos Brands has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Sovos Brands is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with McDonalds and Sovos Brands

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

The idea behind McDonalds and Sovos Brands 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.