Correlation Between Dave Busters and McDonalds

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

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

Diversification Opportunities for Dave Busters and McDonalds

-0.16

Correlation Coefficient

Dave Busters  McDonalds

Good diversification

The 3 months correlation between Dave and McDonalds is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Dave Busters Entertainment and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and Dave Busters 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 Dave Busters Entertainment 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 Dave Busters i.e., Dave Busters and McDonalds go up and down completely randomly.

Pair Corralation between Dave Busters and McDonalds

Given the investment horizon of 90 days Dave Busters Entertainment is expected to under-perform the McDonalds. In addition to that, Dave Busters is 2.83 times more volatile than McDonalds. It trades about -0.09 of its total potential returns per unit of risk. McDonalds is currently generating about -0.16 per unit of volatility. If you would invest  29,544  in McDonalds on January 25, 2024 and sell it today you would lose (1,929) from holding McDonalds or give up 6.53% of portfolio value over 90 days.

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

Dave Busters Entertainment  vs.  McDonalds

Dave Busters Enterta

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dave Busters Entertainment are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Dave Busters may actually be approaching a critical reversion point that can send shares even higher in May 2024.

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 rather sound fundamental indicators, McDonalds is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Dave Busters and McDonalds

The main advantage of trading using opposite Dave Busters and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dave Busters 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 Dave Busters Entertainment 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.