Correlation Between Nio and McDonalds

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

By analyzing existing cross correlation between Nio Class A and McDonalds, you can compare the effects of market volatilities on Nio 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 Nio with a short position of McDonalds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nio and McDonalds.

Diversification Opportunities for Nio and McDonalds

0.86

Correlation Coefficient

Nio  McDonalds

Very poor diversification

The 3 months correlation between Nio and McDonalds is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Nio Class A and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and Nio 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 Nio Class A 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 Nio i.e., Nio and McDonalds go up and down completely randomly.

Pair Corralation between Nio and McDonalds

Considering the 90-day investment horizon Nio Class A is expected to under-perform the McDonalds. In addition to that, Nio is 3.93 times more volatile than McDonalds. It trades about -0.17 of its total potential returns per unit of risk. McDonalds is currently generating about -0.17 per unit of volatility. If you would invest  29,607  in McDonalds on January 24, 2024 and sell it today you would lose (2,049) from holding McDonalds or give up 6.92% of portfolio value over 90 days.

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

Nio Class A  vs.  McDonalds

Nio Class A

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nio Class A has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in May 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

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.

Pair Trading with Nio and McDonalds

The main advantage of trading using opposite Nio and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nio 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 Nio Class A 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.

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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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.