Correlation Between McDonalds and Verizon Communications
Can any of the company-specific risk be diversified away by investing in both McDonalds and Verizon Communications 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 Verizon Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between McDonalds and Verizon Communications, you can compare the effects of market volatilities on McDonalds and Verizon Communications 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 Verizon Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and Verizon Communications.
Diversification Opportunities for McDonalds and Verizon Communications
-0.16 | Correlation Coefficient |
Good diversification
The 3 months correlation between McDonalds and Verizon is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications 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 Verizon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of McDonalds i.e., McDonalds and Verizon Communications go up and down completely randomly.
Pair Corralation between McDonalds and Verizon Communications
Considering the 90-day investment horizon McDonalds is expected to under-perform the Verizon Communications. But the stock apears to be less risky and, when comparing its historical volatility, McDonalds is 1.06 times less risky than Verizon Communications. The stock trades about -0.09 of its potential returns per unit of risk. The Verizon Communications is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest 4,162 in Verizon Communications on January 25, 2024 and sell it today you would lose (192.00) from holding Verizon Communications or give up 4.61% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
McDonalds vs. Verizon Communications
Performance |
| Timeline |
| McDonalds |
| Verizon Communications |
McDonalds and Verizon Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with McDonalds and Verizon Communications
The main advantage of trading using opposite McDonalds and Verizon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, Verizon Communications 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 Verizon Communications will offset losses from the drop in Verizon Communications' long position.| McDonalds vs. Chipotle Mexican Grill | McDonalds vs. Dutch Bros | McDonalds vs. Dominos Pizza | McDonalds vs. Yum Brands |
| Verizon Communications vs. T Mobile | Verizon Communications vs. Comcast Corp | Verizon Communications vs. Charter Communications | Verizon Communications vs. Vodafone Group PLC |
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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.
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