Correlation Between McDonalds and Character
Can any of the company-specific risk be diversified away by investing in both McDonalds and Character 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 Character into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between McDonalds and The Character Group, you can compare the effects of market volatilities on McDonalds and Character 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 Character. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and Character.
Diversification Opportunities for McDonalds and Character
Good diversification
The 3 months correlation between McDonalds and Character is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and The Character Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Character Group 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 Character. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Character Group has no effect on the direction of McDonalds i.e., McDonalds and Character go up and down completely randomly.
Pair Corralation between McDonalds and Character
Considering the 90-day investment horizon McDonalds is expected to generate 14.56 times more return on investment than Character. However, McDonalds is 14.56 times more volatile than The Character Group. It trades about 0.06 of its potential returns per unit of risk. The Character Group is currently generating about 0.21 per unit of risk. If you would invest 29,152 in McDonalds on August 31, 2024 and sell it today you would earn a total of 356.00 from holding McDonalds or generate 1.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
McDonalds vs. The Character Group
Performance |
| Timeline |
| McDonalds |
| Character Group |
McDonalds and Character Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with McDonalds and Character
The main advantage of trading using opposite McDonalds and Character positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, Character 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 Character will offset losses from the drop in Character's long position.| McDonalds vs. Wingstop | McDonalds vs. RLJ Lodging Trust | McDonalds vs. Aquagold International | McDonalds vs. Stepstone Group |
| Character vs. American Outdoor Brands | Character vs. Clarus Corp | Character vs. Escalade Incorporated | Character vs. Johnson Outdoors |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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