Correlation Between Walmart and McDonalds Corp

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

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

Diversification Opportunities for Walmart and McDonalds Corp

-0.43

Correlation Coefficient

Walmart  McDonalds Corp

Very good diversification

The 3 months correlation between Walmart and McDonalds is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Walmart Inc CDR 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 Walmart 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 Walmart Inc CDR 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 Walmart i.e., Walmart and McDonalds Corp go up and down completely randomly.

Pair Corralation between Walmart and McDonalds Corp

Assuming the 90 days trading horizon Walmart Inc CDR is expected to generate 1.35 times more return on investment than McDonalds Corp. However, Walmart is 1.35 times more volatile than McDonalds Corp CDR. It trades about -0.14 of its potential returns per unit of risk. McDonalds Corp CDR is currently generating about -0.22 per unit of risk. If you would invest  4,072  in Walmart Inc CDR on October 9, 2024 and sell it today you would lose (110.00) from holding Walmart Inc CDR or give up 2.7% of portfolio value over 90 days.

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

Walmart Inc CDR  vs.  McDonalds Corp CDR

Walmart Inc CDR

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart Inc CDR are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Walmart displayed 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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Walmart and McDonalds Corp

The main advantage of trading using opposite Walmart and McDonalds Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Walmart 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 Walmart Inc CDR 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.