Correlation Between BlackRock and McDonalds

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

Diversification Opportunities for BlackRock and McDonalds

0.87
  Correlation Coefficient

Very poor diversification

The 3 months correlation between BlackRock and McDonalds is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding BlackRock and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and BlackRock 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 BlackRock 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 BlackRock i.e., BlackRock and McDonalds go up and down completely randomly.

Pair Corralation between BlackRock and McDonalds

Considering the 90-day investment horizon BlackRock is expected to generate 4.23 times more return on investment than McDonalds. However, BlackRock is 4.23 times more volatile than McDonalds. It trades about 0.13 of its potential returns per unit of risk. McDonalds is currently generating about 0.01 per unit of risk. If you would invest  65,615  in BlackRock on September 5, 2022 and sell it today you would earn a total of  5,683  from holding BlackRock or generate 8.66% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

BlackRock  vs.  McDonalds

 Performance (%) 
       Timeline  
BlackRock 
BlackRock Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in BlackRock are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak essential indicators, BlackRock may actually be approaching a critical reversion point that can send shares even higher in January 2023.

BlackRock Price Channel

McDonalds 
McDonalds Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in McDonalds are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather sluggish fundamental indicators, McDonalds may actually be approaching a critical reversion point that can send shares even higher in January 2023.

McDonalds Price Channel

BlackRock and McDonalds Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with BlackRock and McDonalds

The main advantage of trading using opposite BlackRock and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BlackRock 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 BlackRock 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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