Correlation Between Collins Foods and McDonalds
Can any of the company-specific risk be diversified away by investing in both Collins Foods 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 Collins Foods and McDonalds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Collins Foods Limited and McDonalds, you can compare the effects of market volatilities on Collins Foods 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 Collins Foods with a short position of McDonalds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Collins Foods and McDonalds.
Diversification Opportunities for Collins Foods and McDonalds
0.03 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Collins and McDonalds is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Collins Foods Limited and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and Collins Foods 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 Collins Foods Limited 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 Collins Foods i.e., Collins Foods and McDonalds go up and down completely randomly.
Pair Corralation between Collins Foods and McDonalds
Assuming the 90 days horizon Collins Foods Limited is expected to under-perform the McDonalds. In addition to that, Collins Foods is 1.52 times more volatile than McDonalds. It trades about -0.3 of its total potential returns per unit of risk. McDonalds is currently generating about -0.06 per unit of volatility. If you would invest 27,619 in McDonalds on October 23, 2024 and sell it today you would lose (509.00) from holding McDonalds or give up 1.84% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Collins Foods Limited vs. McDonalds
Performance |
| Timeline |
| Collins Foods Limited |
| McDonalds |
Collins Foods and McDonalds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Collins Foods and McDonalds
The main advantage of trading using opposite Collins Foods and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Collins Foods 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.| Collins Foods vs. McDonalds | Collins Foods vs. Starbucks | Collins Foods vs. Starbucks | Collins Foods vs. Chipotle Mexican Grill |
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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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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