Correlation Between PayPal Holdings and McDonalds
Can any of the company-specific risk be diversified away by investing in both PayPal Holdings 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 PayPal Holdings and McDonalds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PayPal Holdings and McDonalds, you can compare the effects of market volatilities on PayPal Holdings 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 PayPal Holdings with a short position of McDonalds. Check out your portfolio center. Please also check ongoing floating volatility patterns of PayPal Holdings and McDonalds.
Diversification Opportunities for PayPal Holdings and McDonalds
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between PayPal and McDonalds is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding PayPal Holdings and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and PayPal Holdings 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 PayPal Holdings 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 PayPal Holdings i.e., PayPal Holdings and McDonalds go up and down completely randomly.
Pair Corralation between PayPal Holdings and McDonalds
Given the investment horizon of 90 days PayPal Holdings is expected to generate 2.21 times more return on investment than McDonalds. However, PayPal Holdings is 2.21 times more volatile than McDonalds. It trades about 0.03 of its potential returns per unit of risk. McDonalds is currently generating about 0.03 per unit of risk. If you would invest 6,903 in PayPal Holdings on September 13, 2024 and sell it today you would earn a total of 2,037 from holding PayPal Holdings or generate 29.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
PayPal Holdings vs. McDonalds
Performance |
| Timeline |
| PayPal Holdings |
| McDonalds |
PayPal Holdings and McDonalds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PayPal Holdings and McDonalds
The main advantage of trading using opposite PayPal Holdings and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PayPal Holdings 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.| PayPal Holdings vs. SoFi Technologies | PayPal Holdings vs. Visa Class A | PayPal Holdings vs. Capital One Financial | PayPal Holdings vs. American Express |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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