Correlation Between McDonalds and IPath Series
Can any of the company-specific risk be diversified away by investing in both McDonalds and IPath Series 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 IPath Series into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between McDonalds and iPath Series B, you can compare the effects of market volatilities on McDonalds and IPath Series 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 IPath Series. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and IPath Series.
Diversification Opportunities for McDonalds and IPath Series
-0.58 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between McDonalds and IPath is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and iPath Series B in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iPath Series B 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 IPath Series. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iPath Series B has no effect on the direction of McDonalds i.e., McDonalds and IPath Series go up and down completely randomly.
Pair Corralation between McDonalds and IPath Series
Considering the 90-day investment horizon McDonalds is expected to generate 0.46 times more return on investment than IPath Series. However, McDonalds is 2.16 times less risky than IPath Series. It trades about 0.04 of its potential returns per unit of risk. iPath Series B is currently generating about -0.01 per unit of risk. If you would invest 25,034 in McDonalds on September 1, 2024 and sell it today you would earn a total of 4,567 from holding McDonalds or generate 18.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 99.78% |
| Values | Daily Returns |
McDonalds vs. iPath Series B
Performance |
| Timeline |
| McDonalds |
| iPath Series B |
McDonalds and IPath Series Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with McDonalds and IPath Series
The main advantage of trading using opposite McDonalds and IPath Series positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, IPath Series 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 IPath Series will offset losses from the drop in IPath Series' long position.| McDonalds vs. The Wendys Co | McDonalds vs. Shake Shack | McDonalds vs. Papa Johns International | McDonalds vs. Darden Restaurants |
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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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