Correlation Between Restaurant Brands and McDonalds

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

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

Diversification Opportunities for Restaurant Brands and McDonalds

0.82

Correlation Coefficient

Restaurant Brands  McDonalds

Very poor diversification

The 3 months correlation between Restaurant and McDonalds is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Restaurant Brands Internationa and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and Restaurant Brands 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 Restaurant Brands International 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 Restaurant Brands i.e., Restaurant Brands and McDonalds go up and down completely randomly.

Pair Corralation between Restaurant Brands and McDonalds

Considering the 90-day investment horizon Restaurant Brands is expected to generate 6.68 times less return on investment than McDonalds. In addition to that, Restaurant Brands is 1.18 times more volatile than McDonalds. It trades about 0.01 of its total potential returns per unit of risk. McDonalds is currently generating about 0.09 per unit of volatility. If you would invest  28,794  in McDonalds on December 30, 2024 and sell it today you would earn a total of  1,915  from holding McDonalds or generate 6.65% return on investment over 90 days.

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

Restaurant Brands Internationa  vs.  McDonalds

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. Even with relatively invariable basic indicators, Restaurant Brands is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

McDonalds

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in McDonalds are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental indicators, McDonalds may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Restaurant Brands and McDonalds

The main advantage of trading using opposite Restaurant Brands and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Restaurant Brands 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 Restaurant Brands International 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.