Correlation Between National Beverage and McDonalds
Can any of the company-specific risk be diversified away by investing in both National Beverage 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 National Beverage and McDonalds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between National Beverage Corp and McDonalds, you can compare the effects of market volatilities on National Beverage 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 National Beverage with a short position of McDonalds. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Beverage and McDonalds.
Diversification Opportunities for National Beverage and McDonalds
0.54 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between National and McDonalds is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding National Beverage Corp and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and National Beverage 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 National Beverage Corp 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 National Beverage i.e., National Beverage and McDonalds go up and down completely randomly.
Pair Corralation between National Beverage and McDonalds
Assuming the 90 days horizon National Beverage Corp is expected to generate 2.07 times more return on investment than McDonalds. However, National Beverage is 2.07 times more volatile than McDonalds. It trades about 0.29 of its potential returns per unit of risk. McDonalds is currently generating about 0.22 per unit of risk. If you would invest 4,160 in National Beverage Corp on September 4, 2024 and sell it today you would earn a total of 500.00 from holding National Beverage Corp or generate 12.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
National Beverage Corp vs. McDonalds
Performance |
| Timeline |
| National Beverage Corp |
| McDonalds |
National Beverage and McDonalds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with National Beverage and McDonalds
The main advantage of trading using opposite National Beverage and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Beverage 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.| National Beverage vs. Bumrungrad Hospital Public | National Beverage vs. CVS Health | National Beverage vs. Plastic Omnium | National Beverage vs. United Rentals |
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Check out your portfolio center.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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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