Correlation Between Dominos Pizza and McDonalds
Can any of the company-specific risk be diversified away by investing in both Dominos Pizza and McDonalds 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 Dominos Pizza and McDonalds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dominos Pizza Group and McDonalds, you can compare the effects of market volatilities on Dominos Pizza and McDonalds 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 Dominos Pizza with a short position of McDonalds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dominos Pizza and McDonalds.
Diversification Opportunities for Dominos Pizza and McDonalds
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Dominos and McDonalds is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Dominos Pizza Group and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and Dominos Pizza 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 Dominos Pizza Group are associated (or correlated) with McDonalds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McDonalds has no effect on the direction of Dominos Pizza i.e., Dominos Pizza and McDonalds go up and down completely randomly.
Pair Corralation between Dominos Pizza and McDonalds
Assuming the 90 days horizon Dominos Pizza Group is expected to under-perform the McDonalds. In addition to that, Dominos Pizza is 1.47 times more volatile than McDonalds. It trades about -0.12 of its total potential returns per unit of risk. McDonalds is currently generating about -0.13 per unit of volatility. If you would invest 28,923 in McDonalds on March 7, 2024 and sell it today you would lose (2,651) from holding McDonalds or give up 9.17% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 98.41% |
Values | Daily Returns |
Dominos Pizza Group vs. McDonalds
Performance |
Timeline |
Dominos Pizza Group |
McDonalds |
Dominos Pizza and McDonalds Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Dominos Pizza and McDonalds
The main advantage of trading using opposite Dominos Pizza and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dominos Pizza position performs unexpectedly, McDonalds 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 McDonalds will offset losses from the drop in McDonalds' long position.Dominos Pizza vs. McDonalds | Dominos Pizza vs. Starbucks | Dominos Pizza vs. Chipotle Mexican Grill | Dominos Pizza vs. Yum Brands |
McDonalds vs. Pfizer Inc | McDonalds vs. Worthington Steel | McDonalds vs. Southern Company | McDonalds vs. VINCI SA |
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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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