Correlation Between McDonalds and Invesco DB

Can any of the company-specific risk be diversified away by investing in both McDonalds and Invesco DB 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 Invesco DB into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between McDonalds and Invesco DB Energy, you can compare the effects of market volatilities on McDonalds and Invesco DB 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 Invesco DB. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and Invesco DB.

Diversification Opportunities for McDonalds and Invesco DB

-0.65

Correlation Coefficient

McDonalds  Invesco DB

Excellent diversification

The 3 months correlation between McDonalds and Invesco is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Invesco DB Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DB Energy 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 Invesco DB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco DB Energy has no effect on the direction of McDonalds i.e., McDonalds and Invesco DB go up and down completely randomly.

Pair Corralation between McDonalds and Invesco DB

Considering the 90-day investment horizon McDonalds is expected to under-perform the Invesco DB. In addition to that, McDonalds is 1.04 times more volatile than Invesco DB Energy. It trades about -0.18 of its total potential returns per unit of risk. Invesco DB Energy is currently generating about 0.05 per unit of volatility. If you would invest  1,961  in Invesco DB Energy on February 23, 2024 and sell it today you would earn a total of  53.00  from holding Invesco DB Energy or generate 2.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

McDonalds  vs.  Invesco DB Energy

McDonalds

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days McDonalds has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Invesco DB Energy

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DB Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental drivers, Invesco DB is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with McDonalds and Invesco DB

The main advantage of trading using opposite McDonalds and Invesco DB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, Invesco DB 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 Invesco DB will offset losses from the drop in Invesco DB's long position.

The idea behind McDonalds and Invesco DB Energy pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.