Correlation Between Caterpillar and McDonalds
Can any of the company-specific risk be diversified away by investing in both Caterpillar 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 Caterpillar and McDonalds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and McDonalds, you can compare the effects of market volatilities on Caterpillar 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 Caterpillar with a short position of McDonalds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and McDonalds.
Diversification Opportunities for Caterpillar and McDonalds
-0.33 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Caterpillar and McDonalds is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and Caterpillar 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 Caterpillar 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 Caterpillar i.e., Caterpillar and McDonalds go up and down completely randomly.
Pair Corralation between Caterpillar and McDonalds
Considering the 90-day investment horizon Caterpillar is expected to under-perform the McDonalds. In addition to that, Caterpillar is 1.13 times more volatile than McDonalds. It trades about -0.51 of its total potential returns per unit of risk. McDonalds is currently generating about 0.19 per unit of volatility. If you would invest 29,309 in McDonalds on November 27, 2024 and sell it today you would earn a total of 1,448 from holding McDonalds or generate 4.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caterpillar vs. McDonalds
Performance |
| Timeline |
| Caterpillar |
| McDonalds |
Caterpillar and McDonalds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caterpillar and McDonalds
The main advantage of trading using opposite Caterpillar and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar 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.| Caterpillar vs. Aquagold International | Caterpillar vs. Thrivent High Yield | Caterpillar vs. Morningstar Unconstrained Allocation | Caterpillar vs. Via Renewables |
| McDonalds vs. Chipotle Mexican Grill | McDonalds vs. Dominos Pizza Common | McDonalds vs. Yum Brands | McDonalds vs. The Wendys Co |
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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
Other Complementary Tools
| Global Markets Map Get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes | |
| Stocks Directory Find actively traded stocks across global markets | |
| Pair Correlation Compare performance and examine fundamental relationship between any two equity instruments | |
| Piotroski F Score Get Piotroski F Score based on the binary analysis strategy of nine different fundamentals | |
| Price Exposure Probability Analyze equity upside and downside potential for a given time horizon across multiple markets |