Correlation Between McDonalds and Pacific West
Can any of the company-specific risk be diversified away by investing in both McDonalds and Pacific West 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 Pacific West into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between McDonalds and Pacific West Bancorp, you can compare the effects of market volatilities on McDonalds and Pacific West 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 Pacific West. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and Pacific West.
Diversification Opportunities for McDonalds and Pacific West
-0.31 | Correlation Coefficient |
Very good diversification
The 3 months correlation between McDonalds and Pacific is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Pacific West Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacific West Bancorp 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 Pacific West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacific West Bancorp has no effect on the direction of McDonalds i.e., McDonalds and Pacific West go up and down completely randomly.
Pair Corralation between McDonalds and Pacific West
Considering the 90-day investment horizon McDonalds is expected to generate 0.2 times more return on investment than Pacific West. However, McDonalds is 5.07 times less risky than Pacific West. It trades about -0.28 of its potential returns per unit of risk. Pacific West Bancorp is currently generating about -0.07 per unit of risk. If you would invest 30,071 in McDonalds on October 11, 2024 and sell it today you would lose (1,381) from holding McDonalds or give up 4.59% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
McDonalds vs. Pacific West Bancorp
Performance |
| Timeline |
| McDonalds |
| Pacific West Bancorp |
McDonalds and Pacific West Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with McDonalds and Pacific West
The main advantage of trading using opposite McDonalds and Pacific West positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, Pacific West 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 Pacific West will offset losses from the drop in Pacific West's long position.| McDonalds vs. Chipotle Mexican Grill | McDonalds vs. Yum Brands | McDonalds vs. The Wendys Co | McDonalds vs. Wingstop |
| Pacific West vs. CECO Environmental Corp | Pacific West vs. Chart Industries | Pacific West vs. Tyson Foods | Pacific West vs. United Parks Resorts |
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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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