Correlation Between McDonalds and Exxon
Can any of the company-specific risk be diversified away by investing in both McDonalds and Exxon 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 Exxon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between McDonalds and Exxon Mobil Corp, you can compare the effects of market volatilities on McDonalds and Exxon 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 Exxon. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and Exxon.
Diversification Opportunities for McDonalds and Exxon
Modest diversification
The 3 months correlation between McDonalds and Exxon is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Exxon Mobil Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exxon Mobil Corp 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 Exxon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exxon Mobil Corp has no effect on the direction of McDonalds i.e., McDonalds and Exxon go up and down completely randomly.
Pair Corralation between McDonalds and Exxon
Considering the 90-day investment horizon McDonalds is expected to generate 0.71 times more return on investment than Exxon. However, McDonalds is 1.4 times less risky than Exxon. It trades about 0.03 of its potential returns per unit of risk. Exxon Mobil Corp is currently generating about 0.02 per unit of risk. If you would invest 25,544 in McDonalds on September 13, 2024 and sell it today you would earn a total of 4,119 from holding McDonalds or generate 16.13% 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. Exxon Mobil Corp
Performance |
| Timeline |
| McDonalds |
| Exxon Mobil Corp |
McDonalds and Exxon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with McDonalds and Exxon
The main advantage of trading using opposite McDonalds and Exxon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, Exxon 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 Exxon will offset losses from the drop in Exxon's long position.The idea behind McDonalds and Exxon Mobil Corp 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.| Exxon vs. Aquagold International | Exxon vs. Thrivent High Yield | Exxon vs. Morningstar Unconstrained Allocation | Exxon vs. Via Renewables |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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