Correlation Between McDonalds and Forward Pharma
Can any of the company-specific risk be diversified away by investing in both McDonalds and Forward Pharma 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 Forward Pharma into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between McDonalds and Forward Pharma A, you can compare the effects of market volatilities on McDonalds and Forward Pharma 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 Forward Pharma. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and Forward Pharma.
Diversification Opportunities for McDonalds and Forward Pharma
-0.52 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between McDonalds and Forward is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Forward Pharma A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Forward Pharma A 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 Forward Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Forward Pharma A has no effect on the direction of McDonalds i.e., McDonalds and Forward Pharma go up and down completely randomly.
Pair Corralation between McDonalds and Forward Pharma
Considering the 90-day investment horizon McDonalds is expected to generate 612.93 times less return on investment than Forward Pharma. But when comparing it to its historical volatility, McDonalds is 134.64 times less risky than Forward Pharma. It trades about 0.03 of its potential returns per unit of risk. Forward Pharma A is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 297.00 in Forward Pharma A on September 2, 2024 and sell it today you would lose (41.00) from holding Forward Pharma A or give up 13.8% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 11.09% |
| Values | Daily Returns |
McDonalds vs. Forward Pharma A
Performance |
| Timeline |
| McDonalds |
| Forward Pharma A |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
McDonalds and Forward Pharma Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with McDonalds and Forward Pharma
The main advantage of trading using opposite McDonalds and Forward Pharma positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, Forward Pharma 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 Forward Pharma will offset losses from the drop in Forward Pharma's long position.The idea behind McDonalds and Forward Pharma A 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.| Forward Pharma vs. Centessa Pharmaceuticals PLC | Forward Pharma vs. Omni Health | Forward Pharma vs. Xponential Fitness | Forward Pharma vs. Valneva SE ADR |
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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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