Correlation Between NH HOTEL and McDonalds
Can any of the company-specific risk be diversified away by investing in both NH HOTEL 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 NH HOTEL and McDonalds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NH HOTEL GROUP and McDonalds, you can compare the effects of market volatilities on NH HOTEL 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 NH HOTEL with a short position of McDonalds. Check out your portfolio center. Please also check ongoing floating volatility patterns of NH HOTEL and McDonalds.
Diversification Opportunities for NH HOTEL and McDonalds
Poor diversification
The 3 months correlation between NH5 and McDonalds is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding NH HOTEL GROUP and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and NH HOTEL 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 NH HOTEL GROUP 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 NH HOTEL i.e., NH HOTEL and McDonalds go up and down completely randomly.
Pair Corralation between NH HOTEL and McDonalds
Assuming the 90 days trading horizon NH HOTEL GROUP is expected to under-perform the McDonalds. In addition to that, NH HOTEL is 2.54 times more volatile than McDonalds. It trades about -0.05 of its total potential returns per unit of risk. McDonalds is currently generating about 0.21 per unit of volatility. If you would invest 26,790 in McDonalds on August 31, 2024 and sell it today you would earn a total of 1,365 from holding McDonalds or generate 5.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
NH HOTEL GROUP vs. McDonalds
Performance |
| Timeline |
| NH HOTEL GROUP |
| McDonalds |
NH HOTEL and McDonalds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NH HOTEL and McDonalds
The main advantage of trading using opposite NH HOTEL and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NH HOTEL 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.| NH HOTEL vs. Take Two Interactive Software | NH HOTEL vs. CyberArk Software | NH HOTEL vs. KINGBOARD CHEMICAL | NH HOTEL vs. ATOSS SOFTWARE |
| McDonalds vs. Chiba Bank | McDonalds vs. InterContinental Hotels Group | McDonalds vs. NH HOTEL GROUP | McDonalds vs. The Hanover Insurance |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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