Correlation Between McDonalds and Level

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

By analyzing existing cross correlation between McDonalds and Level 3 Financing, you can compare the effects of market volatilities on McDonalds and Level 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 Level. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and Level.

Diversification Opportunities for McDonalds and Level

-0.23

Correlation Coefficient

McDonalds  Level

Very good diversification

The 3 months correlation between McDonalds and Level is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Level 3 Financing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Level 3 Financing 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 Level. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Level 3 Financing has no effect on the direction of McDonalds i.e., McDonalds and Level go up and down completely randomly.

Pair Corralation between McDonalds and Level

Considering the 90-day investment horizon McDonalds is expected to generate 56.12 times less return on investment than Level. But when comparing it to its historical volatility, McDonalds is 9.29 times less risky than Level. It trades about 0.02 of its potential returns per unit of risk. Level 3 Financing is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  5,025  in Level 3 Financing on October 25, 2024 and sell it today you would earn a total of  3,471  from holding Level 3 Financing or generate 69.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	53.43%
Values	Daily Returns

McDonalds  vs.  Level 3 Financing

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 recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Level 3 Financing

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Level 3 Financing are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent basic indicators, Level sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with McDonalds and Level

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

The idea behind McDonalds and Level 3 Financing 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 Commodity Directory module to find actively traded commodities issued by global exchanges.