Correlation Between Western Digital and McDonalds

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

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

Diversification Opportunities for Western Digital and McDonalds

0.3

Correlation Coefficient

Western Digital  McDonalds

Weak diversification

The 3 months correlation between Western and McDonalds is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and Western Digital 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 Western Digital 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 Western Digital i.e., Western Digital and McDonalds go up and down completely randomly.

Pair Corralation between Western Digital and McDonalds

Considering the 90-day investment horizon Western Digital is expected to generate 2.6 times more return on investment than McDonalds. However, Western Digital is 2.6 times more volatile than McDonalds. It trades about 0.04 of its potential returns per unit of risk. McDonalds is currently generating about -0.11 per unit of risk. If you would invest  6,632  in Western Digital on October 24, 2024 and sell it today you would earn a total of  231.00  from holding Western Digital or generate 3.48% return on investment over 90 days.

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

Western Digital  vs.  McDonalds

Western Digital

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Western Digital are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Western Digital is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

McDonalds

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days McDonalds has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Western Digital and McDonalds

The main advantage of trading using opposite Western Digital and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Digital 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 Western Digital 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.