Correlation Between Procter Gamble and McDonalds

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

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

Diversification Opportunities for Procter Gamble and McDonalds

-0.18

Correlation Coefficient

Procter Gamble  McDonalds

Good diversification

The 3 months correlation between Procter and McDonalds is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Procter Gamble and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and Procter Gamble 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 Procter Gamble 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 Procter Gamble i.e., Procter Gamble and McDonalds go up and down completely randomly.

Pair Corralation between Procter Gamble and McDonalds

Allowing for the 90-day total investment horizon Procter Gamble is expected to generate 0.95 times more return on investment than McDonalds. However, Procter Gamble is 1.06 times less risky than McDonalds. It trades about -0.22 of its potential returns per unit of risk. McDonalds is currently generating about -0.26 per unit of risk. If you would invest  16,121  in Procter Gamble on January 16, 2024 and sell it today you would lose (576.00) from holding Procter Gamble or give up 3.57% of portfolio value over 90 days.

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

Procter Gamble  vs.  McDonalds

Procter Gamble

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Procter Gamble are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Procter Gamble is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

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 Procter Gamble and McDonalds

The main advantage of trading using opposite Procter Gamble and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Procter Gamble 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 Procter Gamble 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.