Correlation Between Caterpillar and McDonalds Corp

Specify exactly 2 symbols:
Can any of the company-specific risk be diversified away by investing in both Caterpillar and McDonalds Corp 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 Caterpillar and McDonalds Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caterpillar and McDonalds Corp, you can compare the effects of market volatilities on Caterpillar and McDonalds Corp 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 Caterpillar with a short position of McDonalds Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caterpillar and McDonalds Corp.

Diversification Opportunities for Caterpillar and McDonalds Corp

-0.43
  Correlation Coefficient

Very good diversification

The 3 months correlation between Caterpillar and McDonalds is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and McDonalds Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds Corp and Caterpillar 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 Caterpillar are associated (or correlated) with McDonalds Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McDonalds Corp has no effect on the direction of Caterpillar i.e., Caterpillar and McDonalds Corp go up and down completely randomly.

Pair Corralation between Caterpillar and McDonalds Corp

Considering the 90-day investment horizon Caterpillar is expected to generate 5.92 times less return on investment than McDonalds Corp. In addition to that, Caterpillar is 1.69 times more volatile than McDonalds Corp. It trades about 0.01 of its total potential returns per unit of risk. McDonalds Corp is currently generating about 0.05 per unit of volatility. If you would invest  23,328  in McDonalds Corp on May 17, 2022 and sell it today you would earn a total of  3,216  from holding McDonalds Corp or generate 13.79% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Caterpillar  vs.  McDonalds Corp

 Performance (%) 
       Timeline  
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 comparatively stable basic indicators, Caterpillar is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Caterpillar Price Channel

McDonalds Corp 
McDonalds Performance
9 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in McDonalds Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, McDonalds Corp may actually be approaching a critical reversion point that can send shares even higher in September 2022.

McDonalds Price Channel

Caterpillar and McDonalds Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Caterpillar and McDonalds Corp

The main advantage of trading using opposite Caterpillar and McDonalds Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, McDonalds Corp 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 Corp will offset losses from the drop in McDonalds Corp's long position.
The idea behind Caterpillar and McDonalds Corp 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.
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.

Other Complementary Tools

Shere Portfolio
Track or share privately all of your investments from the convenience of any device
Go
Idea Breakdown
Analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes
Go
Pair Correlation
Compare performance and examine fundamental relationship between any two equity instruments
Go
Portfolio Diagnostics
Use generated alerts and portfolio events aggregator to diagnose current holdings
Go
Probability Of Bankruptcy
Get analysis of equity chance of financial distress in the next 2 years
Go
Portfolio Volatility
Check portfolio volatility and analyze historical return density to properly model market risk
Go
Global Markets Map
Get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes
Go
Portfolio Holdings
Check your current holdings and cash postion to detemine if your portfolio needs rebalancing
Go
Instant Ratings
Determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance
Go
Price Transformation
Use Price Transformation models to analyze depth of different equity instruments across global markets
Go
Efficient Frontier
Plot and analyze your portfolio and positions against risk-return landscape of the market.
Go
Alpha Finder
Use alpha and beta coefficients to find investment opportunities after accounting for the risk
Go
Stock Screener
Find equities using custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook.
Go