Correlation Between McDonalds and Western Capital
Can any of the company-specific risk be diversified away by investing in both McDonalds and Western Capital 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 Western Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between McDonalds and Western Capital Resources, you can compare the effects of market volatilities on McDonalds and Western Capital 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 Western Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and Western Capital.
Diversification Opportunities for McDonalds and Western Capital
-0.39 | Correlation Coefficient |
Very good diversification
The 3 months correlation between McDonalds and Western is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Western Capital Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Capital Resources 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 Western Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Capital Resources has no effect on the direction of McDonalds i.e., McDonalds and Western Capital go up and down completely randomly.
Pair Corralation between McDonalds and Western Capital
Considering the 90-day investment horizon McDonalds is expected to generate 6.09 times less return on investment than Western Capital. But when comparing it to its historical volatility, McDonalds is 3.58 times less risky than Western Capital. It trades about 0.09 of its potential returns per unit of risk. Western Capital Resources is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 460.00 in Western Capital Resources on September 2, 2024 and sell it today you would earn a total of 468.00 from holding Western Capital Resources or generate 101.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.21% |
| Values | Daily Returns |
McDonalds vs. Western Capital Resources
Performance |
| Timeline |
| McDonalds |
| Western Capital Resources |
McDonalds and Western Capital Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with McDonalds and Western Capital
The main advantage of trading using opposite McDonalds and Western Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, Western Capital 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 Western Capital will offset losses from the drop in Western Capital's long position.The idea behind McDonalds and Western Capital Resources 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.| Western Capital vs. Porsche Automobile Holding | Western Capital vs. Ferrari NV | Western Capital vs. Toyota Motor | Western Capital vs. General Motors |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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