Correlation Between McDonalds and Armada Mercantile
Can any of the company-specific risk be diversified away by investing in both McDonalds and Armada Mercantile 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 Armada Mercantile into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between McDonalds and Armada Mercantile, you can compare the effects of market volatilities on McDonalds and Armada Mercantile 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 Armada Mercantile. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and Armada Mercantile.
Diversification Opportunities for McDonalds and Armada Mercantile
0.02 | Correlation Coefficient |
Significant diversification
The 3 months correlation between McDonalds and Armada is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Armada Mercantile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Armada Mercantile 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 Armada Mercantile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Armada Mercantile has no effect on the direction of McDonalds i.e., McDonalds and Armada Mercantile go up and down completely randomly.
Pair Corralation between McDonalds and Armada Mercantile
Considering the 90-day investment horizon McDonalds is expected to generate 7.52 times less return on investment than Armada Mercantile. But when comparing it to its historical volatility, McDonalds is 11.72 times less risky than Armada Mercantile. It trades about 0.19 of its potential returns per unit of risk. Armada Mercantile is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 20.00 in Armada Mercantile on November 27, 2024 and sell it today you would earn a total of 4.00 from holding Armada Mercantile or generate 20.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.24% |
| Values | Daily Returns |
McDonalds vs. Armada Mercantile
Performance |
| Timeline |
| McDonalds |
| Armada Mercantile |
McDonalds and Armada Mercantile Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with McDonalds and Armada Mercantile
The main advantage of trading using opposite McDonalds and Armada Mercantile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, Armada Mercantile 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 Armada Mercantile will offset losses from the drop in Armada Mercantile's long position.| McDonalds vs. Chipotle Mexican Grill | McDonalds vs. Dominos Pizza Common | McDonalds vs. Yum Brands | McDonalds vs. The Wendys Co |
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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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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