Correlation Between T REX and McDonalds
Can any of the company-specific risk be diversified away by investing in both T REX and McDonalds 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 T REX and McDonalds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between T REX 2X Long and McDonalds, you can compare the effects of market volatilities on T REX and McDonalds 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 T REX with a short position of McDonalds. Check out your portfolio center. Please also check ongoing floating volatility patterns of T REX and McDonalds.
Diversification Opportunities for T REX and McDonalds
Excellent diversification
The 3 months correlation between MSTU and McDonalds is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding T REX 2X Long and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and T REX 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 T REX 2X Long are associated (or correlated) with McDonalds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McDonalds has no effect on the direction of T REX i.e., T REX and McDonalds go up and down completely randomly.
Pair Corralation between T REX and McDonalds
Given the investment horizon of 90 days T REX 2X Long is expected to generate 12.6 times more return on investment than McDonalds. However, T REX is 12.6 times more volatile than McDonalds. It trades about 0.31 of its potential returns per unit of risk. McDonalds is currently generating about 0.02 per unit of risk. If you would invest 2,552 in T REX 2X Long on September 3, 2024 and sell it today you would earn a total of 13,309 from holding T REX 2X Long or generate 521.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 21.46% |
| Values | Daily Returns |
T REX 2X Long vs. McDonalds
Performance |
| Timeline |
| T REX 2X |
| McDonalds |
T REX and McDonalds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with T REX and McDonalds
The main advantage of trading using opposite T REX and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if T REX position performs unexpectedly, McDonalds 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 will offset losses from the drop in McDonalds' long position.| T REX vs. Tidal Trust II | T REX vs. Tidal Trust II | T REX vs. Direxion Daily META | T REX vs. Direxion Daily META |
| McDonalds vs. Highway Holdings Limited | McDonalds vs. QCR Holdings | McDonalds vs. Partner Communications | McDonalds vs. Acumen Pharmaceuticals |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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