Correlation Between McDonalds and Dave Busters
Can any of the company-specific risk be diversified away by investing in both McDonalds and Dave Busters 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 Dave Busters into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between McDonalds and Dave Busters Entertainment, you can compare the effects of market volatilities on McDonalds and Dave Busters 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 Dave Busters. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and Dave Busters.
Diversification Opportunities for McDonalds and Dave Busters
0.21 | Correlation Coefficient |
Modest diversification
The 3 months correlation between McDonalds and Dave is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Dave Busters Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dave Busters Enterta 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 Dave Busters. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dave Busters Enterta has no effect on the direction of McDonalds i.e., McDonalds and Dave Busters go up and down completely randomly.
Pair Corralation between McDonalds and Dave Busters
Considering the 90-day investment horizon McDonalds is expected to generate 9.23 times less return on investment than Dave Busters. But when comparing it to its historical volatility, McDonalds is 3.94 times less risky than Dave Busters. It trades about 0.02 of its potential returns per unit of risk. Dave Busters Entertainment is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 3,856 in Dave Busters Entertainment on September 2, 2024 and sell it today you would earn a total of 76.00 from holding Dave Busters Entertainment or generate 1.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
McDonalds vs. Dave Busters Entertainment
Performance |
| Timeline |
| McDonalds |
| Dave Busters Enterta |
McDonalds and Dave Busters Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with McDonalds and Dave Busters
The main advantage of trading using opposite McDonalds and Dave Busters positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, Dave Busters 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 Dave Busters will offset losses from the drop in Dave Busters' long position.The idea behind McDonalds and Dave Busters Entertainment 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.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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
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