Correlation Between Alcoa Corp and McDonalds
Can any of the company-specific risk be diversified away by investing in both Alcoa Corp 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 Alcoa Corp and McDonalds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alcoa Corp and McDonalds, you can compare the effects of market volatilities on Alcoa Corp 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 Alcoa Corp with a short position of McDonalds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alcoa Corp and McDonalds.
Diversification Opportunities for Alcoa Corp and McDonalds
0.06 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Alcoa and McDonalds is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and Alcoa Corp 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 Alcoa 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 Alcoa Corp i.e., Alcoa Corp and McDonalds go up and down completely randomly.
Pair Corralation between Alcoa Corp and McDonalds
Allowing for the 90-day total investment horizon Alcoa Corp is expected to under-perform the McDonalds. In addition to that, Alcoa Corp is 3.7 times more volatile than McDonalds. It trades about -0.07 of its total potential returns per unit of risk. McDonalds is currently generating about 0.02 per unit of volatility. If you would invest 29,973 in McDonalds on September 12, 2024 and sell it today you would earn a total of 98.00 from holding McDonalds or generate 0.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Alcoa Corp vs. McDonalds
Performance |
| Timeline |
| Alcoa Corp |
| McDonalds |
Alcoa Corp and McDonalds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Alcoa Corp and McDonalds
The main advantage of trading using opposite Alcoa Corp and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alcoa Corp 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.| Alcoa Corp vs. Sligro Food Group | Alcoa Corp vs. FitLife Brands, Common | Alcoa Corp vs. Aeye Inc | Alcoa Corp vs. Ep Emerging Markets |
| McDonalds vs. Chipotle Mexican Grill | McDonalds vs. Dutch Bros | McDonalds vs. Dominos Pizza | McDonalds vs. Yum Brands |
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 CEOs Directory module to screen CEOs from public companies around the world.
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