Correlation Between McDonalds and RLJ Lodging
Can any of the company-specific risk be diversified away by investing in both McDonalds and RLJ Lodging 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 RLJ Lodging into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between McDonalds and RLJ Lodging Trust, you can compare the effects of market volatilities on McDonalds and RLJ Lodging 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 RLJ Lodging. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and RLJ Lodging.
Diversification Opportunities for McDonalds and RLJ Lodging
-0.05 | Correlation Coefficient |
Good diversification
The 3 months correlation between McDonalds and RLJ is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and RLJ Lodging Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RLJ Lodging Trust 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 RLJ Lodging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RLJ Lodging Trust has no effect on the direction of McDonalds i.e., McDonalds and RLJ Lodging go up and down completely randomly.
Pair Corralation between McDonalds and RLJ Lodging
Considering the 90-day investment horizon McDonalds is expected to generate 42.91 times less return on investment than RLJ Lodging. But when comparing it to its historical volatility, McDonalds is 1.63 times less risky than RLJ Lodging. It trades about 0.02 of its potential returns per unit of risk. RLJ Lodging Trust is currently generating about 0.47 of returns per unit of risk over similar time horizon. If you would invest 877.00 in RLJ Lodging Trust on September 2, 2024 and sell it today you would earn a total of 144.00 from holding RLJ Lodging Trust or generate 16.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
McDonalds vs. RLJ Lodging Trust
Performance |
| Timeline |
| McDonalds |
| RLJ Lodging Trust |
McDonalds and RLJ Lodging Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with McDonalds and RLJ Lodging
The main advantage of trading using opposite McDonalds and RLJ Lodging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, RLJ Lodging 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 RLJ Lodging will offset losses from the drop in RLJ Lodging's long position.The idea behind McDonalds and RLJ Lodging Trust 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.| RLJ Lodging vs. Sunstone Hotel Investors | RLJ Lodging vs. Pebblebrook Hotel Trust | RLJ Lodging vs. Summit Hotel Properties | RLJ Lodging vs. Ryman Hospitality Properties |
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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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