Correlation Between Visa and McDonalds Corp

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

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

Diversification Opportunities for Visa and McDonalds Corp

-0.44

Correlation Coefficient

Visa  McDonalds Corp

Very good diversification

The 3 months correlation between Visa and McDonalds is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and McDonalds Corp CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds Corp CDR and Visa 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 Visa Class A are associated (or correlated) with McDonalds Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McDonalds Corp CDR has no effect on the direction of Visa i.e., Visa and McDonalds Corp go up and down completely randomly.

Pair Corralation between Visa and McDonalds Corp

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.98 times more return on investment than McDonalds Corp. However, Visa Class A is 1.02 times less risky than McDonalds Corp. It trades about 0.08 of its potential returns per unit of risk. McDonalds Corp CDR is currently generating about 0.03 per unit of risk. If you would invest  21,956  in Visa Class A on October 7, 2024 and sell it today you would earn a total of  9,535  from holding Visa Class A or generate 43.43% return on investment over 90 days.

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

Visa Class A  vs.  McDonalds Corp CDR

Visa Class A

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa showed solid returns over the last few months and may actually be approaching a breakup point.

McDonalds Corp CDR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days McDonalds Corp CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, McDonalds Corp is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Visa and McDonalds Corp

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

The idea behind Visa Class A and McDonalds Corp CDR 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.