Correlation Between Inspired Entertainment and McDonalds

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

By analyzing existing cross correlation between Inspired Entertainment and McDonalds, you can compare the effects of market volatilities on Inspired Entertainment 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 Inspired Entertainment with a short position of McDonalds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inspired Entertainment and McDonalds.

Diversification Opportunities for Inspired Entertainment and McDonalds

-0.18

Correlation Coefficient

Inspired Entertainment  McDonalds

Good diversification

The 3 months correlation between Inspired and McDonalds is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Inspired Entertainment and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and Inspired Entertainment 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 Inspired Entertainment 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 Inspired Entertainment i.e., Inspired Entertainment and McDonalds go up and down completely randomly.

Pair Corralation between Inspired Entertainment and McDonalds

Given the investment horizon of 90 days Inspired Entertainment is expected to generate 3.29 times more return on investment than McDonalds. However, Inspired Entertainment is 3.29 times more volatile than McDonalds. It trades about 0.01 of its potential returns per unit of risk. McDonalds is currently generating about 0.03 per unit of risk. If you would invest  949.00  in Inspired Entertainment on January 20, 2024 and sell it today you would lose (60.00) from holding Inspired Entertainment or give up 6.32% of portfolio value over 90 days.

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

Inspired Entertainment  vs.  McDonalds

Inspired Entertainment

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Inspired Entertainment are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Inspired Entertainment is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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.

Pair Trading with Inspired Entertainment and McDonalds

The main advantage of trading using opposite Inspired Entertainment and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Inspired Entertainment 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 Inspired Entertainment 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.

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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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.