Correlation Between McDonalds and CHURCH

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

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

Diversification Opportunities for McDonalds and CHURCH

0.2

Correlation Coefficient

McDonalds  CHURCH

Modest diversification

The 3 months correlation between McDonalds and CHURCH is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and CHURCH DWIGHT INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHURCH DWIGHT 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 CHURCH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHURCH DWIGHT INC has no effect on the direction of McDonalds i.e., McDonalds and CHURCH go up and down completely randomly.

Pair Corralation between McDonalds and CHURCH

Considering the 90-day investment horizon McDonalds is expected to generate 819.88 times less return on investment than CHURCH. But when comparing it to its historical volatility, McDonalds is 158.49 times less risky than CHURCH. It trades about 0.03 of its potential returns per unit of risk. CHURCH DWIGHT INC is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  8,436  in CHURCH DWIGHT INC on October 27, 2024 and sell it today you would lose (501.00) from holding CHURCH DWIGHT INC or give up 5.94% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	32.79%
Values	Daily Returns

McDonalds  vs.  CHURCH DWIGHT INC

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.

CHURCH DWIGHT INC

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with McDonalds and CHURCH

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

The idea behind McDonalds and CHURCH DWIGHT 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.