Correlation Between McDonalds and Wendys
Can any of the company-specific risk be diversified away by investing in both McDonalds and Wendys 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 Wendys into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between McDonalds and The Wendys Co, you can compare the effects of market volatilities on McDonalds and Wendys 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 Wendys. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and Wendys.
Diversification Opportunities for McDonalds and Wendys
Very good diversification
The 3 months correlation between McDonalds and Wendys is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and The Wendys Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Wendys 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 Wendys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Wendys has no effect on the direction of McDonalds i.e., McDonalds and Wendys go up and down completely randomly.
Pair Corralation between McDonalds and Wendys
Considering the 90-day investment horizon McDonalds is expected to under-perform the Wendys. But the stock apears to be less risky and, when comparing its historical volatility, McDonalds is 1.47 times less risky than Wendys. The stock trades about -0.03 of its potential returns per unit of risk. The The Wendys Co is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest 1,826 in The Wendys Co on January 25, 2024 and sell it today you would earn a total of 156.00 from holding The Wendys Co or generate 8.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
McDonalds vs. The Wendys Co
Performance |
| Timeline |
| McDonalds |
| The Wendys |
McDonalds and Wendys Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with McDonalds and Wendys
The main advantage of trading using opposite McDonalds and Wendys positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, Wendys 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 Wendys will offset losses from the drop in Wendys' long position.| McDonalds vs. Chipotle Mexican Grill | McDonalds vs. Dutch Bros | McDonalds vs. Dominos Pizza | McDonalds vs. Yum Brands |
| Wendys vs. Yum Brands | Wendys vs. Dominos Pizza | Wendys vs. Darden Restaurants | Wendys vs. Papa Johns International |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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