Correlation Between COMPASS GROUP and McDonalds Corp

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

Diversification Opportunities for COMPASS GROUP and McDonalds Corp

0.78
  Correlation Coefficient

Poor diversification

The 3 months correlation between COMPASS and McDonalds is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding COMPASS GROUP PLC and McDonalds Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds Corp and COMPASS GROUP 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 COMPASS GROUP PLC 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 COMPASS GROUP i.e., COMPASS GROUP and McDonalds Corp go up and down completely randomly.

Pair Corralation between COMPASS GROUP and McDonalds Corp

Assuming the 90 days horizon COMPASS GROUP PLC is expected to generate 2.23 times more return on investment than McDonalds Corp. However, COMPASS GROUP is 2.23 times more volatile than McDonalds Corp. It trades about 0.04 of its potential returns per unit of risk. McDonalds Corp is currently generating about 0.02 per unit of risk. If you would invest  1,515  in COMPASS GROUP PLC on July 2, 2022 and sell it today you would earn a total of  513.00  from holding COMPASS GROUP PLC or generate 33.86% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

COMPASS GROUP PLC  vs.  McDonalds Corp

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

COMPASS Price Channel

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 latest conflicting performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

McDonalds Price Channel

COMPASS GROUP and McDonalds Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with COMPASS GROUP and McDonalds Corp

The main advantage of trading using opposite COMPASS GROUP and McDonalds Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if COMPASS GROUP 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.
COMPASS GROUP vs. Amazon Inc
The idea behind COMPASS GROUP PLC 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.
McDonalds Corp vs. Amazon Inc
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 Transaction History module to view history of all your transactions and understand their impact on performance.

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