Correlation Between Playa Hotels and McDonalds

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

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

Diversification Opportunities for Playa Hotels and McDonalds

0.56

Correlation Coefficient

Playa Hotels  McDonalds

Very weak diversification

The 3 months correlation between Playa and McDonalds is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Playa Hotels Resorts and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and Playa Hotels 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 Playa Hotels Resorts 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 Playa Hotels i.e., Playa Hotels and McDonalds go up and down completely randomly.

Pair Corralation between Playa Hotels and McDonalds

Assuming the 90 days horizon Playa Hotels Resorts is expected to generate 2.79 times more return on investment than McDonalds. However, Playa Hotels is 2.79 times more volatile than McDonalds. It trades about 0.14 of its potential returns per unit of risk. McDonalds is currently generating about 0.02 per unit of risk. If you would invest  905.00  in Playa Hotels Resorts on December 22, 2024 and sell it today you would earn a total of  305.00  from holding Playa Hotels Resorts or generate 33.7% return on investment over 90 days.

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

Playa Hotels Resorts  vs.  McDonalds

Playa Hotels Resorts

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Playa Hotels Resorts are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Playa Hotels reported solid returns over the last few months and may actually be approaching a breakup point.

McDonalds

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in McDonalds are ranked lower than 1 (%) 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.

Pair Trading with Playa Hotels and McDonalds

The main advantage of trading using opposite Playa Hotels and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Playa Hotels 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 Playa Hotels Resorts 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.