Correlation Between McDonalds and IShares MSCI

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

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

Diversification Opportunities for McDonalds and IShares MSCI

0.72

Correlation Coefficient

McDonalds  IShares MSCI

Poor diversification

The 3 months correlation between McDonalds and IShares is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and iShares MSCI Brazil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI Brazil 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 IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI Brazil has no effect on the direction of McDonalds i.e., McDonalds and IShares MSCI go up and down completely randomly.

Pair Corralation between McDonalds and IShares MSCI

Considering the 90-day investment horizon McDonalds is expected to under-perform the IShares MSCI. But the stock apears to be less risky and, when comparing its historical volatility, McDonalds is 1.3 times less risky than IShares MSCI. The stock trades about -0.17 of its potential returns per unit of risk. The iShares MSCI Brazil is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  3,312  in iShares MSCI Brazil on January 24, 2024 and sell it today you would lose (211.00) from holding iShares MSCI Brazil or give up 6.37% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.62%
Values	Daily Returns

McDonalds  vs.  iShares MSCI Brazil

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.

iShares MSCI Brazil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares MSCI Brazil has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Pair Trading with McDonalds and IShares MSCI

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

The idea behind McDonalds and iShares MSCI Brazil 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.