Correlation Between Carnival and McDonalds
Can any of the company-specific risk be diversified away by investing in both Carnival 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 Carnival and McDonalds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Carnival and McDonalds, you can compare the effects of market volatilities on Carnival 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 Carnival with a short position of McDonalds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carnival and McDonalds.
Diversification Opportunities for Carnival and McDonalds
Good diversification
The 3 months correlation between Carnival and McDonalds is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Carnival and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and Carnival 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 Carnival 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 Carnival i.e., Carnival and McDonalds go up and down completely randomly.
Pair Corralation between Carnival and McDonalds
Considering the 90-day investment horizon Carnival is expected to generate 2.86 times more return on investment than McDonalds. However, Carnival is 2.86 times more volatile than McDonalds. It trades about 0.1 of its potential returns per unit of risk. McDonalds is currently generating about 0.03 per unit of risk. If you would invest 924.00 in Carnival on November 1, 2024 and sell it today you would earn a total of 1,925 from holding Carnival or generate 208.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Carnival vs. McDonalds
Performance |
| Timeline |
| Carnival |
| McDonalds |
Carnival and McDonalds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Carnival and McDonalds
The main advantage of trading using opposite Carnival and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Carnival 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.| Carnival vs. Royal Caribbean Cruises | Carnival vs. Airbnb Inc | Carnival vs. Expedia Group | Carnival vs. Booking Holdings |
| McDonalds vs. Papa Johns International | McDonalds vs. Darden Restaurants | McDonalds vs. Yum China Holdings |
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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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