Correlation Between Morgan Stanley and McDonalds

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

By analyzing existing cross correlation between Morgan Stanley Direct and McDonalds, you can compare the effects of market volatilities on Morgan Stanley and McDonalds 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 Morgan Stanley with a short position of McDonalds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morgan Stanley and McDonalds.

Diversification Opportunities for Morgan Stanley and McDonalds

0.42

Correlation Coefficient

Morgan Stanley  McDonalds

Very weak diversification

The 3 months correlation between Morgan and McDonalds is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Stanley Direct and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and Morgan Stanley 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 Morgan Stanley Direct are associated (or correlated) with McDonalds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McDonalds has no effect on the direction of Morgan Stanley i.e., Morgan Stanley and McDonalds go up and down completely randomly.

Pair Corralation between Morgan Stanley and McDonalds

Given the investment horizon of 90 days Morgan Stanley Direct is expected to generate 1.26 times more return on investment than McDonalds. However, Morgan Stanley is 1.26 times more volatile than McDonalds. It trades about 0.04 of its potential returns per unit of risk. McDonalds is currently generating about 0.04 per unit of risk. If you would invest  1,907  in Morgan Stanley Direct on September 17, 2024 and sell it today you would earn a total of  211.00  from holding Morgan Stanley Direct or generate 11.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	45.77%
Values	Daily Returns

Morgan Stanley Direct  vs.  McDonalds

Morgan Stanley Direct

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley Direct are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile fundamental indicators, Morgan Stanley may actually be approaching a critical reversion point that can send shares even higher in January 2025.

McDonalds

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in McDonalds are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, McDonalds may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Morgan Stanley and McDonalds

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

The idea behind Morgan Stanley Direct and McDonalds 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.