Correlation Between McDonalds and ALTRIA

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

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

Diversification Opportunities for McDonalds and ALTRIA

-0.14

Correlation Coefficient

McDonalds  ALTRIA

Good diversification

The 3 months correlation between McDonalds and ALTRIA is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and ALTRIA GROUP INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALTRIA GROUP INC 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 ALTRIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALTRIA GROUP INC has no effect on the direction of McDonalds i.e., McDonalds and ALTRIA go up and down completely randomly.

Pair Corralation between McDonalds and ALTRIA

Considering the 90-day investment horizon McDonalds is expected to generate 2.85 times more return on investment than ALTRIA. However, McDonalds is 2.85 times more volatile than ALTRIA GROUP INC. It trades about 0.06 of its potential returns per unit of risk. ALTRIA GROUP INC is currently generating about 0.01 per unit of risk. If you would invest  29,311  in McDonalds on December 25, 2024 and sell it today you would earn a total of  1,256  from holding McDonalds or generate 4.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.72%
Values	Daily Returns

McDonalds  vs.  ALTRIA GROUP INC

McDonalds

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in McDonalds are ranked lower than 4 (%) 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.

ALTRIA GROUP INC

Risk-Adjusted Performance

Very Weak

Over the last 90 days ALTRIA GROUP INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ALTRIA is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with McDonalds and ALTRIA

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

The idea behind McDonalds and ALTRIA GROUP INC 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.