Correlation Between McDonalds and Portillos
Can any of the company-specific risk be diversified away by investing in both McDonalds and Portillos 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 Portillos into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between McDonalds and Portillos, you can compare the effects of market volatilities on McDonalds and Portillos 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 Portillos. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and Portillos.
Diversification Opportunities for McDonalds and Portillos
Good diversification
The 3 months correlation between McDonalds and Portillos is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Portillos in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Portillos 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 Portillos. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Portillos has no effect on the direction of McDonalds i.e., McDonalds and Portillos go up and down completely randomly.
Pair Corralation between McDonalds and Portillos
Considering the 90-day investment horizon McDonalds is expected to generate 18.33 times less return on investment than Portillos. But when comparing it to its historical volatility, McDonalds is 4.74 times less risky than Portillos. It trades about 0.14 of its potential returns per unit of risk. Portillos is currently generating about 0.53 of returns per unit of risk over similar time horizon. If you would invest 920.00 in Portillos on November 9, 2024 and sell it today you would earn a total of 541.00 from holding Portillos or generate 58.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
McDonalds vs. Portillos
Performance |
| Timeline |
| McDonalds |
| Portillos |
McDonalds and Portillos Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with McDonalds and Portillos
The main advantage of trading using opposite McDonalds and Portillos positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, Portillos 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 Portillos will offset losses from the drop in Portillos' long position.| McDonalds vs. Chipotle Mexican Grill | McDonalds vs. Dutch Bros | McDonalds vs. Dominos Pizza Common | McDonalds vs. Yum Brands |
| Portillos vs. Brinker International | Portillos vs. Bloomin Brands | Portillos vs. Wingstop | Portillos vs. Papa Johns International |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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