Correlation Between McDonalds and SOUTHERN

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

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

Diversification Opportunities for McDonalds and SOUTHERN

0.28

Correlation Coefficient

McDonalds  SOUTHERN

Modest diversification

The 3 months correlation between McDonalds and SOUTHERN is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and SOUTHERN PER CORP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SOUTHERN PER P 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 SOUTHERN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SOUTHERN PER P has no effect on the direction of McDonalds i.e., McDonalds and SOUTHERN go up and down completely randomly.

Pair Corralation between McDonalds and SOUTHERN

Considering the 90-day investment horizon McDonalds is expected to under-perform the SOUTHERN. But the stock apears to be less risky and, when comparing its historical volatility, McDonalds is 1.06 times less risky than SOUTHERN. The stock trades about -0.14 of its potential returns per unit of risk. The SOUTHERN PER CORP is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  9,421  in SOUTHERN PER CORP on October 8, 2024 and sell it today you would earn a total of  47.00  from holding SOUTHERN PER CORP or generate 0.5% return on investment over 90 days.

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

McDonalds  vs.  SOUTHERN PER CORP

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.

SOUTHERN PER P

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind McDonalds and SOUTHERN PER CORP 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.