Correlation Between McDonalds and BANCO

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

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

Diversification Opportunities for McDonalds and BANCO

0.14

Correlation Coefficient

McDonalds  BANCO

Average diversification

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

Pair Corralation between McDonalds and BANCO

Considering the 90-day investment horizon McDonalds is expected to generate 4.81 times more return on investment than BANCO. However, McDonalds is 4.81 times more volatile than BANCO SANTANDER SA. It trades about 0.05 of its potential returns per unit of risk. BANCO SANTANDER SA is currently generating about -0.01 per unit of risk. If you would invest  26,253  in McDonalds on October 9, 2024 and sell it today you would earn a total of  2,681  from holding McDonalds or generate 10.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	93.01%
Values	Daily Returns

McDonalds  vs.  BANCO SANTANDER SA

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.

BANCO SANTANDER SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BANCO SANTANDER SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, BANCO 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 BANCO

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

The idea behind McDonalds and BANCO SANTANDER SA 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.