Correlation Between McDonalds and Disney

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

By analyzing existing cross correlation between McDonalds and Walt Disney, you can compare the effects of market volatilities on McDonalds and Disney 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 Disney. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and Disney.

Diversification Opportunities for McDonalds and Disney

-0.62

Correlation Coefficient

McDonalds  Disney

Excellent diversification

The 3 months correlation between McDonalds and Disney is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Walt Disney in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walt Disney 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 Disney. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walt Disney has no effect on the direction of McDonalds i.e., McDonalds and Disney go up and down completely randomly.

Pair Corralation between McDonalds and Disney

Considering the 90-day investment horizon McDonalds is expected to under-perform the Disney. But the stock apears to be less risky and, when comparing its historical volatility, McDonalds is 1.7 times less risky than Disney. The stock trades about -0.26 of its potential returns per unit of risk. The Walt Disney is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  11,385  in Walt Disney on January 16, 2024 and sell it today you would lose (90.00) from holding Walt Disney or give up 0.79% of portfolio value over 90 days.

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

McDonalds  vs.  Walt Disney

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.

Walt Disney

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak forward indicators, Disney unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with McDonalds and Disney

The main advantage of trading using opposite McDonalds and Disney positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, Disney 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 Disney will offset losses from the drop in Disney's long position.

The idea behind McDonalds and Walt Disney 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.