Correlation Between Pfizer and McDonalds

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

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

Diversification Opportunities for Pfizer and McDonalds

0.55

Correlation Coefficient

Pfizer  McDonalds

Very weak diversification

The 3 months correlation between Pfizer and McDonalds is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Pfizer Inc and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and Pfizer 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 Pfizer Inc 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 Pfizer i.e., Pfizer and McDonalds go up and down completely randomly.

Pair Corralation between Pfizer and McDonalds

Considering the 90-day investment horizon Pfizer Inc is expected to under-perform the McDonalds. In addition to that, Pfizer is 1.21 times more volatile than McDonalds. It trades about -0.2 of its total potential returns per unit of risk. McDonalds is currently generating about -0.06 per unit of volatility. If you would invest  27,862  in McDonalds on January 24, 2024 and sell it today you would lose (304.00) from holding McDonalds or give up 1.09% of portfolio value over 90 days.

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

Pfizer Inc  vs.  McDonalds

Pfizer Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pfizer Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Pfizer is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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 Pfizer and McDonalds

The main advantage of trading using opposite Pfizer and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pfizer 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 Pfizer Inc 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.