Correlation Between Chevron Corp and McDonalds Corp

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

Diversification Opportunities for Chevron Corp and McDonalds Corp

-0.36
  Correlation Coefficient

Very good diversification

The 3 months correlation between Chevron and McDonalds is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Chevron Corp and McDonalds Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds Corp and Chevron 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 Chevron Corp 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 Chevron Corp i.e., Chevron Corp and McDonalds Corp go up and down completely randomly.

Pair Corralation between Chevron Corp and McDonalds Corp

Considering the 90-day investment horizon Chevron Corp is expected to generate 2.38 times more return on investment than McDonalds Corp. However, Chevron Corp is 2.38 times more volatile than McDonalds Corp. It trades about 0.21 of its potential returns per unit of risk. McDonalds Corp is currently generating about 0.23 per unit of risk. If you would invest  13,958  in Chevron Corp on May 19, 2022 and sell it today you would earn a total of  1,683  from holding Chevron Corp or generate 12.06% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Chevron Corp  vs.  McDonalds Corp

 Performance (%) 
       Timeline  
Chevron Corp 
Chevron Performance
0 of 100
Over the last 90 days Chevron Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Chevron Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Chevron Price Channel

McDonalds Corp 
McDonalds Performance
17 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in McDonalds Corp are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather sluggish fundamental indicators, McDonalds Corp exhibited solid returns over the last few months and may actually be approaching a breakup point.

McDonalds Price Channel

Chevron Corp and McDonalds Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Chevron Corp and McDonalds Corp

The main advantage of trading using opposite Chevron Corp and McDonalds Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chevron Corp 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 Chevron Corp 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.

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