Correlation Between McDonalds and Restaurant Brands
Can any of the company-specific risk be diversified away by investing in both McDonalds and Restaurant Brands 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 Restaurant Brands into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between McDonalds and Restaurant Brands International, you can compare the effects of market volatilities on McDonalds and Restaurant Brands 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 Restaurant Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and Restaurant Brands.
Diversification Opportunities for McDonalds and Restaurant Brands
0.36 | Correlation Coefficient |
Weak diversification
The 3 months correlation between McDonalds and Restaurant is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Restaurant Brands Internationa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Restaurant Brands 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 Restaurant Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Restaurant Brands has no effect on the direction of McDonalds i.e., McDonalds and Restaurant Brands go up and down completely randomly.
Pair Corralation between McDonalds and Restaurant Brands
Assuming the 90 days horizon McDonalds is expected to generate 1.06 times more return on investment than Restaurant Brands. However, McDonalds is 1.06 times more volatile than Restaurant Brands International. It trades about -0.24 of its potential returns per unit of risk. Restaurant Brands International is currently generating about -0.43 per unit of risk. If you would invest 28,200 in McDonalds on October 25, 2024 and sell it today you would lose (1,195) from holding McDonalds or give up 4.24% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
McDonalds vs. Restaurant Brands Internationa
Performance |
| Timeline |
| McDonalds |
| Restaurant Brands |
McDonalds and Restaurant Brands Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with McDonalds and Restaurant Brands
The main advantage of trading using opposite McDonalds and Restaurant Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, Restaurant Brands 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 Restaurant Brands will offset losses from the drop in Restaurant Brands' long position.| McDonalds vs. Kingdee International Software | McDonalds vs. NXP Semiconductors NV | McDonalds vs. BE Semiconductor Industries | McDonalds vs. MagnaChip Semiconductor Corp |
| Restaurant Brands vs. FAIR ISAAC | Restaurant Brands vs. SOGECLAIR SA INH | Restaurant Brands vs. FORWARD AIR P | Restaurant Brands vs. BRIT AMER TOBACCO |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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