Correlation Between McDonalds and Farmers Bancorp
Can any of the company-specific risk be diversified away by investing in both McDonalds and Farmers Bancorp 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 Farmers Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between McDonalds and Farmers Bancorp, you can compare the effects of market volatilities on McDonalds and Farmers Bancorp 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 Farmers Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and Farmers Bancorp.
Diversification Opportunities for McDonalds and Farmers Bancorp
-0.66 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between McDonalds and Farmers is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Farmers Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmers Bancorp 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 Farmers Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farmers Bancorp has no effect on the direction of McDonalds i.e., McDonalds and Farmers Bancorp go up and down completely randomly.
Pair Corralation between McDonalds and Farmers Bancorp
Considering the 90-day investment horizon McDonalds is expected to generate 0.54 times more return on investment than Farmers Bancorp. However, McDonalds is 1.87 times less risky than Farmers Bancorp. It trades about 0.02 of its potential returns per unit of risk. Farmers Bancorp is currently generating about -0.02 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 Against |
| Strength | Weak |
| Accuracy | 64.25% |
| Values | Daily Returns |
McDonalds vs. Farmers Bancorp
Performance |
| Timeline |
| McDonalds |
| Farmers Bancorp |
McDonalds and Farmers Bancorp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with McDonalds and Farmers Bancorp
The main advantage of trading using opposite McDonalds and Farmers Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, Farmers Bancorp 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 Farmers Bancorp will offset losses from the drop in Farmers Bancorp's long position.The idea behind McDonalds and Farmers Bancorp 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.| Farmers Bancorp vs. First Farmers Financial | Farmers Bancorp vs. Farmers Merchants Bancorp | Farmers Bancorp vs. Lakeland Financial | Farmers Bancorp vs. Eagle Financial Services |
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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