Correlation Between McDonalds and BAKER

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

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

Diversification Opportunities for McDonalds and BAKER

0.41

Correlation Coefficient

McDonalds  BAKER

Very weak diversification

The 3 months correlation between McDonalds and BAKER is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and BAKER HUGHES A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BAKER HUGHES A 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 BAKER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BAKER HUGHES A has no effect on the direction of McDonalds i.e., McDonalds and BAKER go up and down completely randomly.

Pair Corralation between McDonalds and BAKER

Considering the 90-day investment horizon McDonalds is expected to under-perform the BAKER. In addition to that, McDonalds is 1.18 times more volatile than BAKER HUGHES A. It trades about -0.2 of its total potential returns per unit of risk. BAKER HUGHES A is currently generating about -0.23 per unit of volatility. If you would invest  9,650  in BAKER HUGHES A on October 9, 2024 and sell it today you would lose (299.00) from holding BAKER HUGHES A or give up 3.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.0%
Values	Daily Returns

McDonalds  vs.  BAKER HUGHES A

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.

BAKER HUGHES A

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with McDonalds and BAKER

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

The idea behind McDonalds and BAKER HUGHES A 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.