Correlation Between McDonalds and Bt Brands
Can any of the company-specific risk be diversified away by investing in both McDonalds and Bt Brands 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 Bt Brands into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between McDonalds and Bt Brands, you can compare the effects of market volatilities on McDonalds and Bt Brands 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 Bt Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and Bt Brands.
Diversification Opportunities for McDonalds and Bt Brands
Weak diversification
The 3 months correlation between McDonalds and BTBD is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Bt Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bt Brands 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 Bt Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bt Brands has no effect on the direction of McDonalds i.e., McDonalds and Bt Brands go up and down completely randomly.
Pair Corralation between McDonalds and Bt Brands
Considering the 90-day investment horizon McDonalds is expected to generate 0.18 times more return on investment than Bt Brands. However, McDonalds is 5.52 times less risky than Bt Brands. It trades about 0.02 of its potential returns per unit of risk. Bt Brands is currently generating about 0.0 per unit of risk. If you would invest 28,022 in McDonalds on September 2, 2024 and sell it today you would earn a total of 1,579 from holding McDonalds or generate 5.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
McDonalds vs. Bt Brands
Performance |
| Timeline |
| McDonalds |
| Bt Brands |
McDonalds and Bt Brands Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with McDonalds and Bt Brands
The main advantage of trading using opposite McDonalds and Bt Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, Bt Brands 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 Bt Brands will offset losses from the drop in Bt Brands' long position.The idea behind McDonalds and Bt Brands pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Bt Brands vs. Alsea SAB de | Bt Brands vs. Marstons PLC | Bt Brands vs. Bagger Daves Burger | Bt Brands vs. Marstons PLC |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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