Correlation Between Guangdong Investment and McDonalds

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Can any of the company-specific risk be diversified away by investing in both Guangdong Investment 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 Guangdong Investment and McDonalds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Guangdong Investment Limited and McDonalds, you can compare the effects of market volatilities on Guangdong Investment 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 Guangdong Investment with a short position of McDonalds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Investment and McDonalds.

Diversification Opportunities for Guangdong Investment and McDonalds

0.67
  Correlation Coefficient

Poor diversification

The 3 months correlation between Guangdong and McDonalds is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Investment Limited and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and Guangdong Investment 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 Guangdong Investment Limited 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 Guangdong Investment i.e., Guangdong Investment and McDonalds go up and down completely randomly.

Pair Corralation between Guangdong Investment and McDonalds

Assuming the 90 days horizon Guangdong Investment Limited is expected to under-perform the McDonalds. In addition to that, Guangdong Investment is 5.69 times more volatile than McDonalds. It trades about -0.22 of its total potential returns per unit of risk. McDonalds is currently generating about -0.26 per unit of volatility. If you would invest  27,858  in McDonalds on January 17, 2024 and sell it today you would lose (1,235) from holding McDonalds or give up 4.43% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Guangdong Investment Limited  vs.  McDonalds

 Performance 
       Timeline  
Guangdong Investment 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Guangdong Investment Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.
McDonalds 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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.

Guangdong Investment and McDonalds Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Guangdong Investment and McDonalds

The main advantage of trading using opposite Guangdong Investment and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Guangdong Investment 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.
The idea behind Guangdong Investment Limited and McDonalds 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.
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.

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