Correlation Between General Electric and McDonalds Corp

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

Diversification Opportunities for General Electric and McDonalds Corp

0.05
  Correlation Coefficient

Significant diversification

The 3 months correlation between General and McDonalds is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding General Electric and McDonalds Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds Corp and General Electric 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 General Electric 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 General Electric i.e., General Electric and McDonalds Corp go up and down completely randomly.

Pair Corralation between General Electric and McDonalds Corp

Allowing for the 90-day total investment horizon General Electric is expected to generate 1.58 times more return on investment than McDonalds Corp. However, General Electric is 1.58 times more volatile than McDonalds Corp. It trades about 0.71 of its potential returns per unit of risk. McDonalds Corp is currently generating about 0.16 per unit of risk. If you would invest  6,109  in General Electric on May 15, 2022 and sell it today you would earn a total of  1,884  from holding General Electric or generate 30.84% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

General Electric  vs.  McDonalds Corp

 Performance (%) 
       Timeline  
General Electric 
General Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in General Electric are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sluggish technical and fundamental indicators, General Electric may actually be approaching a critical reversion point that can send shares even higher in September 2022.

General Price Channel

McDonalds Corp 
McDonalds Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in McDonalds Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent fundamental indicators, McDonalds Corp may actually be approaching a critical reversion point that can send shares even higher in September 2022.

McDonalds Price Channel

General Electric and McDonalds Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with General Electric and McDonalds Corp

The main advantage of trading using opposite General Electric and McDonalds Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General Electric 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.

General Electric

Pair trading matchups for General Electric

The idea behind General Electric 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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