Correlation Between McDonalds and Rave Restaurant

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

Diversification Opportunities for McDonalds and Rave Restaurant

-0.04
  Correlation Coefficient

Good diversification

The 3 months correlation between McDonalds and Rave Restaurant is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Rave Restaurant Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rave Restaurant Group 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 Rave Restaurant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rave Restaurant Group has no effect on the direction of McDonalds i.e., McDonalds and Rave Restaurant go up and down completely randomly.

Pair Corralation between McDonalds and Rave Restaurant

Considering the 90-day investment horizon McDonalds is expected to generate 2.15 times less return on investment than Rave Restaurant. But when comparing it to its historical volatility, McDonalds is 3.8 times less risky than Rave Restaurant. It trades about 0.06 of its potential returns per unit of risk. Rave Restaurant Group is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  129.00  in Rave Restaurant Group on October 30, 2022 and sell it today you would earn a total of  39.00  from holding Rave Restaurant Group or generate 30.23% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy99.8%
ValuesDaily Returns

McDonalds  vs.  Rave Restaurant Group

 Performance (%) 
       Timeline  
McDonalds 
McDonalds Performance
0 of 100
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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

McDonalds Price Channel

Rave Restaurant Group 
Rave Restaurant Performance
0 of 100
Over the last 90 days Rave Restaurant Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Rave Restaurant is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Rave Restaurant Price Channel

McDonalds and Rave Restaurant Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with McDonalds and Rave Restaurant

The main advantage of trading using opposite McDonalds and Rave Restaurant positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, Rave Restaurant 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 Rave Restaurant will offset losses from the drop in Rave Restaurant's long position.
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The idea behind McDonalds and Rave Restaurant Group 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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Check out your portfolio center. 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 Global Correlations module to find global opportunities by holding instruments from different markets.

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