Correlation Between Associated British and McDonalds
Can any of the company-specific risk be diversified away by investing in both Associated British 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 Associated British and McDonalds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Associated British Foods and McDonalds, you can compare the effects of market volatilities on Associated British 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 Associated British with a short position of McDonalds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Associated British and McDonalds.
Diversification Opportunities for Associated British and McDonalds
0.47 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Associated and McDonalds is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Associated British Foods and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and Associated British 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 Associated British Foods 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 Associated British i.e., Associated British and McDonalds go up and down completely randomly.
Pair Corralation between Associated British and McDonalds
Assuming the 90 days trading horizon Associated British Foods is expected to generate 1.62 times more return on investment than McDonalds. However, Associated British is 1.62 times more volatile than McDonalds. It trades about 0.06 of its potential returns per unit of risk. McDonalds is currently generating about 0.04 per unit of risk. If you would invest 1,768 in Associated British Foods on September 14, 2024 and sell it today you would earn a total of 937.00 from holding Associated British Foods or generate 53.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
Associated British Foods vs. McDonalds
Performance |
| Timeline |
| Associated British Foods |
| McDonalds |
Associated British and McDonalds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Associated British and McDonalds
The main advantage of trading using opposite Associated British and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Associated British 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.| Associated British vs. Hormel Foods | Associated British vs. Superior Plus Corp | Associated British vs. SIVERS SEMICONDUCTORS AB | Associated British vs. NorAm Drilling AS |
| McDonalds vs. SENECA FOODS A | McDonalds vs. SPORT LISBOA E | McDonalds vs. Associated British Foods | McDonalds vs. Transportadora de Gas |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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