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 0.69. 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 generate 1.21 times more return on investment than McDonalds. However, Apple is 1.21 times more volatile than McDonalds. It trades about 0.12 of its potential returns per unit of risk. McDonalds is currently generating about 0.08 per unit of risk. If you would invest 20,820 in Apple Inc on August 30, 2024 and sell it today you would earn a total of 1,405 from holding Apple Inc or generate 6.75% return on investment 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. UMC Electronics Co | Apple vs. BW OFFSHORE LTD | Apple vs. BYD ELECTRONIC | Apple vs. United Rentals |
| McDonalds vs. DiamondRock Hospitality | McDonalds vs. The Boston Beer | McDonalds vs. SHIP HEALTHCARE HLDGINC | McDonalds vs. National Health Investors |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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