Correlation Between McDonalds and T REX
Can any of the company-specific risk be diversified away by investing in both McDonalds and T REX 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 T REX into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between McDonalds and T REX 2X Long, you can compare the effects of market volatilities on McDonalds and T REX 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 T REX. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and T REX.
Diversification Opportunities for McDonalds and T REX
Excellent diversification
The 3 months correlation between McDonalds and MSTU is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and T REX 2X Long in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on T REX 2X 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 T REX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of T REX 2X has no effect on the direction of McDonalds i.e., McDonalds and T REX go up and down completely randomly.
Pair Corralation between McDonalds and T REX
Considering the 90-day investment horizon McDonalds is expected to generate 165.14 times less return on investment than T REX. But when comparing it to its historical volatility, McDonalds is 14.13 times less risky than T REX. It trades about 0.03 of its potential returns per unit of risk. T REX 2X Long is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest 2,552 in T REX 2X Long on September 2, 2024 and sell it today you would earn a total of 13,309 from holding T REX 2X Long or generate 521.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 10.69% |
| Values | Daily Returns |
McDonalds vs. T REX 2X Long
Performance |
| Timeline |
| McDonalds |
| T REX 2X |
McDonalds and T REX Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with McDonalds and T REX
The main advantage of trading using opposite McDonalds and T REX positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, T REX 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 T REX will offset losses from the drop in T REX's long position.The idea behind McDonalds and T REX 2X Long 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.| T REX vs. Tidal Trust II | T REX vs. Tidal Trust II | T REX vs. Direxion Daily META | T REX vs. Direxion Daily META |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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