Correlation Between Apple and McDonalds
Can any of the company-specific risk be diversified away by investing in both Apple 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 Apple and McDonalds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Apple Inc and McDonalds, you can compare the effects of market volatilities on Apple 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 Apple with a short position of McDonalds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Apple and McDonalds.
Diversification Opportunities for Apple and McDonalds
Poor diversification
The 3 months correlation between Apple and McDonalds is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and Apple 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 Apple Inc 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 Apple i.e., Apple and McDonalds go up and down completely randomly.
Pair Corralation between Apple and McDonalds
Assuming the 90 days trading horizon Apple Inc is expected to under-perform the McDonalds. In addition to that, Apple is 2.41 times more volatile than McDonalds. It trades about -0.08 of its total potential returns per unit of risk. McDonalds is currently generating about -0.17 per unit of volatility. If you would invest 28,700 in McDonalds on November 2, 2024 and sell it today you would lose (890.00) from holding McDonalds or give up 3.1% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Apple Inc vs. McDonalds
Performance |
| Timeline |
| Apple Inc |
| McDonalds |
Apple and McDonalds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Apple and McDonalds
The main advantage of trading using opposite Apple and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Apple 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.| Apple vs. RCS MediaGroup SpA | Apple vs. Nexstar Media Group | Apple vs. PARKEN Sport Entertainment | Apple vs. SALESFORCE INC CDR |
| McDonalds vs. Guangdong Investment Limited | McDonalds vs. Scottish Mortgage Investment | McDonalds vs. EAGLE MATERIALS | McDonalds vs. Heidelberg Materials AG |
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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