Correlation Between McDonalds and American Mutual
Can any of the company-specific risk be diversified away by investing in both McDonalds and American Mutual 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 American Mutual into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between McDonalds and American Mutual Fund, you can compare the effects of market volatilities on McDonalds and American Mutual 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 American Mutual. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and American Mutual.
Diversification Opportunities for McDonalds and American Mutual
-0.48 | Correlation Coefficient |
Very good diversification
The 3 months correlation between McDonalds and American is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and American Mutual Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Mutual 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 American Mutual. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Mutual has no effect on the direction of McDonalds i.e., McDonalds and American Mutual go up and down completely randomly.
Pair Corralation between McDonalds and American Mutual
Considering the 90-day investment horizon McDonalds is expected to generate 1.35 times more return on investment than American Mutual. However, McDonalds is 1.35 times more volatile than American Mutual Fund. It trades about -0.03 of its potential returns per unit of risk. American Mutual Fund is currently generating about -0.16 per unit of risk. If you would invest 27,862 in McDonalds on January 25, 2024 and sell it today you would lose (187.00) from holding McDonalds or give up 0.67% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
McDonalds vs. American Mutual Fund
Performance |
| Timeline |
| McDonalds |
| American Mutual |
McDonalds and American Mutual Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with McDonalds and American Mutual
The main advantage of trading using opposite McDonalds and American Mutual positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, American Mutual 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 American Mutual will offset losses from the drop in American Mutual's long position.| McDonalds vs. Chipotle Mexican Grill | McDonalds vs. Dutch Bros | McDonalds vs. Dominos Pizza | McDonalds vs. Yum Brands |
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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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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