Correlation Between DFA US and McDonalds

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Can any of the company-specific risk be diversified away by investing in both DFA US 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 DFA US and McDonalds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DFA US Sustainability and McDonalds, you can compare the effects of market volatilities on DFA US 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 DFA US with a short position of McDonalds. Check out your portfolio center. Please also check ongoing floating volatility patterns of DFA US and McDonalds.

Diversification Opportunities for DFA US and McDonalds

0.89
  Correlation Coefficient

Very poor diversification

The 3 months correlation between DAABX and McDonalds is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding DFA US Sustainability and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and DFA US 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 DFA US Sustainability 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 DFA US i.e., DFA US and McDonalds go up and down completely randomly.

Pair Corralation between DFA US and McDonalds

Assuming the 90 days horizon DFA US is expected to generate 1.0 times less return on investment than McDonalds. In addition to that, DFA US is 1.3 times more volatile than McDonalds. It trades about 0.05 of its total potential returns per unit of risk. McDonalds is currently generating about 0.06 per unit of volatility. If you would invest  20,264  in McDonalds on September 3, 2022 and sell it today you would earn a total of  6,985  from holding McDonalds or generate 34.47% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

DFA US Sustainability  vs.  McDonalds

 Performance (%) 
       Timeline  
DFA US Sustainability 
DAABX Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in DFA US Sustainability are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental drivers, DFA US may actually be approaching a critical reversion point that can send shares even higher in January 2023.

DAABX Price Channel

McDonalds 
McDonalds Performance
6 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in McDonalds are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting fundamental indicators, McDonalds may actually be approaching a critical reversion point that can send shares even higher in January 2023.

McDonalds Price Channel

DFA US and McDonalds Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with DFA US and McDonalds

The main advantage of trading using opposite DFA US and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DFA US 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.
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The idea behind DFA US Sustainability 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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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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.

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