Correlation Between Microsoft and McDonalds Corp
Can any of the company-specific risk be diversified away by investing in both Microsoft and McDonalds Corp 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 Microsoft and McDonalds Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and McDonalds Corp CDR, you can compare the effects of market volatilities on Microsoft and McDonalds Corp 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 Microsoft with a short position of McDonalds Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and McDonalds Corp.
Diversification Opportunities for Microsoft and McDonalds Corp
0.12 | Correlation Coefficient |
Average diversification
The 3 months correlation between Microsoft and McDonalds is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and McDonalds Corp CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds Corp CDR and Microsoft 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 Microsoft are associated (or correlated) with McDonalds Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McDonalds Corp CDR has no effect on the direction of Microsoft i.e., Microsoft and McDonalds Corp go up and down completely randomly.
Pair Corralation between Microsoft and McDonalds Corp
Given the investment horizon of 90 days Microsoft is expected to generate 1.39 times more return on investment than McDonalds Corp. However, Microsoft is 1.39 times more volatile than McDonalds Corp CDR. It trades about 0.08 of its potential returns per unit of risk. McDonalds Corp CDR is currently generating about 0.02 per unit of risk. If you would invest 25,277 in Microsoft on September 3, 2024 and sell it today you would earn a total of 17,069 from holding Microsoft or generate 67.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. McDonalds Corp CDR
Performance |
| Timeline |
| Microsoft |
| McDonalds Corp CDR |
Microsoft and McDonalds Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and McDonalds Corp
The main advantage of trading using opposite Microsoft and McDonalds Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, McDonalds Corp 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 McDonalds Corp will offset losses from the drop in McDonalds Corp's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| McDonalds Corp vs. High Liner Foods | McDonalds Corp vs. Richelieu Hardware | McDonalds Corp vs. International Zeolite Corp | McDonalds Corp vs. European Residential Real |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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