Correlation Between Altria and McDonalds

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

Diversification Opportunities for Altria and McDonalds

-0.66
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Altria and McDonalds is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Altria Group and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and Altria 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 Altria Group are associated (or correlated) with McDonalds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McDonalds has no effect on the direction of Altria i.e., Altria and McDonalds go up and down completely randomly.

Pair Corralation between Altria and McDonalds

Allowing for the 90-day total investment horizon Altria Group is expected to under-perform the McDonalds. In addition to that, Altria is 1.29 times more volatile than McDonalds. It trades about 0.0 of its total potential returns per unit of risk. McDonalds is currently generating about 0.04 per unit of volatility. If you would invest  23,951  in McDonalds on December 30, 2023 and sell it today you would earn a total of  4,244  from holding McDonalds or generate 17.72% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Altria Group  vs.  McDonalds

 Performance 
       Timeline  
Altria Group 

Risk-Adjusted Performance

7 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Altria Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Altria may actually be approaching a critical reversion point that can send shares even higher in April 2024.
McDonalds 

Risk-Adjusted Performance

0 of 100

 
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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Altria and McDonalds Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Altria and McDonalds

The main advantage of trading using opposite Altria and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Altria position performs unexpectedly, McDonalds 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 McDonalds will offset losses from the drop in McDonalds' long position.
The idea behind Altria Group and McDonalds 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.
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 the Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.

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