Correlation Between McDonalds and Restaurant Brands

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

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

Diversification Opportunities for McDonalds and Restaurant Brands

0.61

Correlation Coefficient

McDonalds  Restaurant Brands

Poor diversification

The 3 months correlation between McDonalds and Restaurant is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Restaurant Brands Internationa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Restaurant Brands 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 Restaurant Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Restaurant Brands has no effect on the direction of McDonalds i.e., McDonalds and Restaurant Brands go up and down completely randomly.

Pair Corralation between McDonalds and Restaurant Brands

Assuming the 90 days horizon McDonalds is expected to generate 0.89 times more return on investment than Restaurant Brands. However, McDonalds is 1.13 times less risky than Restaurant Brands. It trades about 0.05 of its potential returns per unit of risk. Restaurant Brands International is currently generating about 0.01 per unit of risk. If you would invest  27,899  in McDonalds on December 29, 2024 and sell it today you would earn a total of  1,011  from holding McDonalds or generate 3.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

McDonalds  vs.  Restaurant Brands Internationa

McDonalds

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in McDonalds are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, McDonalds is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Restaurant Brands

Risk-Adjusted Performance

Very Weak

Over the last 90 days Restaurant Brands International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Restaurant Brands is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with McDonalds and Restaurant Brands

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

The idea behind McDonalds and Restaurant Brands International 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.