Correlation Between McDonalds Corp and Caterpillar

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

Diversification Opportunities for McDonalds Corp and Caterpillar

0.66
  Correlation Coefficient

Poor diversification

The 3 months correlation between McDonalds and Caterpillar is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds Corp and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and McDonalds Corp 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 McDonalds Corp are associated (or correlated) with Caterpillar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caterpillar has no effect on the direction of McDonalds Corp i.e., McDonalds Corp and Caterpillar go up and down completely randomly.

Pair Corralation between McDonalds Corp and Caterpillar

Considering the 90-day investment horizon McDonalds Corp is expected to generate 0.53 times more return on investment than Caterpillar. However, McDonalds Corp is 1.89 times less risky than Caterpillar. It trades about -0.17 of its potential returns per unit of risk. Caterpillar is currently generating about -0.38 per unit of risk. If you would invest  25,555  in McDonalds Corp on June 27, 2022 and sell it today you would lose (960.00)  from holding McDonalds Corp or give up 3.76% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

McDonalds Corp  vs.  Caterpillar

 Performance (%) 
       Timeline  
McDonalds Corp 
McDonalds Performance
0 of 100
Over the last 90 days McDonalds Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, McDonalds Corp is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

McDonalds Price Channel

Caterpillar 
Caterpillar Performance
0 of 100
Over the last 90 days Caterpillar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Caterpillar Price Channel

McDonalds Corp and Caterpillar Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with McDonalds Corp and Caterpillar

The main advantage of trading using opposite McDonalds Corp and Caterpillar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds Corp position performs unexpectedly, Caterpillar 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 Caterpillar will offset losses from the drop in Caterpillar's long position.
McDonalds Corp vs. Industrias Bachoco SA
The idea behind McDonalds Corp and Caterpillar 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.
Caterpillar vs. BUSHVELD MINERALS LTD
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.

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