Correlation Between McDonalds and Bed Bath

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

Diversification Opportunities for McDonalds and Bed Bath

-0.16
  Correlation Coefficient

Good diversification

The 3 months correlation between McDonalds and Bed is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Bed Bath Beyond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bed Bath Beyond 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 Bed Bath. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bed Bath Beyond has no effect on the direction of McDonalds i.e., McDonalds and Bed Bath go up and down completely randomly.

Pair Corralation between McDonalds and Bed Bath

Considering the 90-day investment horizon McDonalds is expected to generate 0.07 times more return on investment than Bed Bath. However, McDonalds is 13.36 times less risky than Bed Bath. It trades about 0.03 of its potential returns per unit of risk. Bed Bath Beyond is currently generating about -0.03 per unit of risk. If you would invest  24,048  in McDonalds on December 29, 2023 and sell it today you would earn a total of  3,814  from holding McDonalds or generate 15.86% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy62.75%
ValuesDaily Returns

McDonalds  vs.  Bed Bath Beyond

 Performance 
       Timeline  
McDonalds 

Risk-Adjusted Performance

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Low
 
High
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 rather sound fundamental indicators, McDonalds is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.
Bed Bath Beyond 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Bed Bath Beyond has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental drivers, Bed Bath is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

McDonalds and Bed Bath Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with McDonalds and Bed Bath

The main advantage of trading using opposite McDonalds and Bed Bath positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, Bed Bath 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 Bed Bath will offset losses from the drop in Bed Bath's long position.
The idea behind McDonalds and Bed Bath Beyond 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.

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