Correlation Between McDonalds and Sweetgreen
Can any of the company-specific risk be diversified away by investing in both McDonalds and Sweetgreen 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 Sweetgreen into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between McDonalds and Sweetgreen, you can compare the effects of market volatilities on McDonalds and Sweetgreen 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 Sweetgreen. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and Sweetgreen.
Diversification Opportunities for McDonalds and Sweetgreen
0.25 | Correlation Coefficient |
Modest diversification
The 3 months correlation between McDonalds and Sweetgreen is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Sweetgreen in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sweetgreen 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 Sweetgreen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sweetgreen has no effect on the direction of McDonalds i.e., McDonalds and Sweetgreen go up and down completely randomly.
Pair Corralation between McDonalds and Sweetgreen
Considering the 90-day investment horizon McDonalds is expected to generate 23.79 times less return on investment than Sweetgreen. But when comparing it to its historical volatility, McDonalds is 4.69 times less risky than Sweetgreen. It trades about 0.02 of its potential returns per unit of risk. Sweetgreen is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 1,046 in Sweetgreen on September 2, 2024 and sell it today you would earn a total of 3,052 from holding Sweetgreen or generate 291.78% 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. Sweetgreen
Performance |
| Timeline |
| McDonalds |
| Sweetgreen |
McDonalds and Sweetgreen Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with McDonalds and Sweetgreen
The main advantage of trading using opposite McDonalds and Sweetgreen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, Sweetgreen 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 Sweetgreen will offset losses from the drop in Sweetgreen's long position.The idea behind McDonalds and Sweetgreen 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 Stocks Directory module to find actively traded stocks across global markets.
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