Correlation Between McDonalds and Sprott Physical

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

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

Diversification Opportunities for McDonalds and Sprott Physical

-0.77

Correlation Coefficient

McDonalds  Sprott Physical

Pay attention - limited upside

The 3 months correlation between McDonalds and Sprott is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Sprott Physical Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sprott Physical Gold 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 Sprott Physical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sprott Physical Gold has no effect on the direction of McDonalds i.e., McDonalds and Sprott Physical go up and down completely randomly.

Pair Corralation between McDonalds and Sprott Physical

Considering the 90-day investment horizon McDonalds is expected to under-perform the Sprott Physical. In addition to that, McDonalds is 1.21 times more volatile than Sprott Physical Gold. It trades about -0.07 of its total potential returns per unit of risk. Sprott Physical Gold is currently generating about 0.16 per unit of volatility. If you would invest  1,538  in Sprott Physical Gold on March 8, 2024 and sell it today you would earn a total of  271.00  from holding Sprott Physical Gold or generate 17.62% return on investment over 90 days.

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

McDonalds  vs.  Sprott Physical Gold

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.

Sprott Physical Gold

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sprott Physical Gold are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Sprott Physical may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Pair Trading with McDonalds and Sprott Physical

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

The idea behind McDonalds and Sprott Physical Gold 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.