Correlation Between McDonalds and Verizon Communications
Can any of the company-specific risk be diversified away by investing in both McDonalds and Verizon Communications 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 McDonalds and Verizon Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between McDonalds and Verizon Communications, you can compare the effects of market volatilities on McDonalds and Verizon Communications 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 McDonalds with a short position of Verizon Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and Verizon Communications.
Diversification Opportunities for McDonalds and Verizon Communications
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between McDonalds and Verizon is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications and McDonalds 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 McDonalds are associated (or correlated) with Verizon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of McDonalds i.e., McDonalds and Verizon Communications go up and down completely randomly.
Pair Corralation between McDonalds and Verizon Communications
Assuming the 90 days trading horizon McDonalds is expected to generate 4.15 times less return on investment than Verizon Communications. But when comparing it to its historical volatility, McDonalds is 1.32 times less risky than Verizon Communications. It trades about 0.06 of its potential returns per unit of risk. Verizon Communications is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 82,651 in Verizon Communications on September 5, 2024 and sell it today you would earn a total of 6,659 from holding Verizon Communications or generate 8.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
McDonalds vs. Verizon Communications
Performance |
| Timeline |
| McDonalds |
| Verizon Communications |
McDonalds and Verizon Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with McDonalds and Verizon Communications
The main advantage of trading using opposite McDonalds and Verizon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, Verizon Communications 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 Verizon Communications will offset losses from the drop in Verizon Communications' long position.| McDonalds vs. Verizon Communications | McDonalds vs. New Oriental Education | McDonalds vs. Cognizant Technology Solutions | McDonalds vs. Micron Technology |
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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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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