Correlation Between McDonalds and Alphabet
Can any of the company-specific risk be diversified away by investing in both McDonalds and Alphabet 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 Alphabet into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between McDonalds and Alphabet Inc Class C, you can compare the effects of market volatilities on McDonalds and Alphabet 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 Alphabet. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and Alphabet.
Diversification Opportunities for McDonalds and Alphabet
Excellent diversification
The 3 months correlation between McDonalds and Alphabet is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Alphabet Inc Class C in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet Class C 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 Alphabet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphabet Class C has no effect on the direction of McDonalds i.e., McDonalds and Alphabet go up and down completely randomly.
Pair Corralation between McDonalds and Alphabet
Considering the 90-day investment horizon McDonalds is expected to under-perform the Alphabet. But the stock apears to be less risky and, when comparing its historical volatility, McDonalds is 1.5 times less risky than Alphabet. The stock trades about -0.03 of its potential returns per unit of risk. The Alphabet Inc Class C is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 15,170 in Alphabet Inc Class C on January 26, 2024 and sell it today you would earn a total of 940.00 from holding Alphabet Inc Class C or generate 6.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
McDonalds vs. Alphabet Inc Class C
Performance |
| Timeline |
| McDonalds |
| Alphabet Class C |
McDonalds and Alphabet Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with McDonalds and Alphabet
The main advantage of trading using opposite McDonalds and Alphabet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, Alphabet 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 Alphabet will offset losses from the drop in Alphabet's long position.| McDonalds vs. Chipotle Mexican Grill | McDonalds vs. Dutch Bros | McDonalds vs. Dominos Pizza | McDonalds vs. Yum Brands |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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