Correlation Between Ruths Hospitality and McDonalds

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

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

Diversification Opportunities for Ruths Hospitality and McDonalds

-0.77

Correlation Coefficient

Ruths Hospitality  McDonalds

Pay attention - limited upside

The 3 months correlation between Ruths and McDonalds is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Ruths Hospitality Group and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and Ruths Hospitality 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 Ruths Hospitality 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 Ruths Hospitality i.e., Ruths Hospitality and McDonalds go up and down completely randomly.

Pair Corralation between Ruths Hospitality and McDonalds

Given the investment horizon of 90 days Ruths Hospitality Group is expected to generate 6.49 times more return on investment than McDonalds. However, Ruths Hospitality is 6.49 times more volatile than McDonalds. It trades about 0.16 of its potential returns per unit of risk. McDonalds is currently generating about -0.02 per unit of risk. If you would invest  1,631  in Ruths Hospitality Group on January 26, 2024 and sell it today you would earn a total of  518.00  from holding Ruths Hospitality Group or generate 31.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	13.71%
Values	Daily Returns

Ruths Hospitality Group  vs.  McDonalds

Ruths Hospitality

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ruths Hospitality Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Ruths Hospitality is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

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 Ruths Hospitality and McDonalds

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

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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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.