Correlation Between Home Depot and McDonalds Corp

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

Diversification Opportunities for Home Depot and McDonalds Corp

0.64
  Correlation Coefficient

Poor diversification

The 3 months correlation between Home Depot and McDonalds is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and McDonalds Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds Corp and Home Depot 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 Home Depot 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 Home Depot i.e., Home Depot and McDonalds Corp go up and down completely randomly.

Pair Corralation between Home Depot and McDonalds Corp

Allowing for the 90-day total investment horizon Home Depot is expected to generate 1.28 times more return on investment than McDonalds Corp. However, Home Depot is 1.28 times more volatile than McDonalds Corp. It trades about 0.24 of its potential returns per unit of risk. McDonalds Corp is currently generating about 0.25 per unit of risk. If you would invest  27,346  in Home Depot on May 17, 2022 and sell it today you would earn a total of  3,862  from holding Home Depot or generate 14.12% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Home Depot  vs.  McDonalds Corp

 Performance (%) 
       Timeline  
Home Depot 
Home Depot Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Home Depot is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Home Depot Price Channel

McDonalds Corp 
McDonalds Performance
8 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in McDonalds Corp are ranked lower than 8 (%) 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

Home Depot and McDonalds Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Home Depot and McDonalds Corp

The main advantage of trading using opposite Home Depot and McDonalds Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot 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 Home Depot 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 CEO Directory module to screen CEOs from public companies around the world.

Other Complementary Tools

Portfolio Optimization
Compute new portfolio that will generate highest expected return given your specified tolerance for risk
Go
Options Analysis
Analyze and evaluate options and option chains as a potential hedge for your portfolios
Go
Equity Valuation
Check real value of public entities based on technical and fundamental data
Go
Stock Screener
Find equities using custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook.
Go
Portfolio Rebalancing
Analyze risk-adjusted returns against different time horizons to find asset-allocation targets
Go
Idea Optimizer
Use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio
Go