Correlation Between McDonalds and AutoZone

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

Diversification Opportunities for McDonalds and AutoZone

0.81
  Correlation Coefficient

Very poor diversification

The 3 months correlation between McDonalds and AutoZone is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and AutoZone in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AutoZone and McDonalds 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 McDonalds are associated (or correlated) with AutoZone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AutoZone has no effect on the direction of McDonalds i.e., McDonalds and AutoZone go up and down completely randomly.

Pair Corralation between McDonalds and AutoZone

Considering the 90-day investment horizon McDonalds is expected to generate 3.76 times less return on investment than AutoZone. But when comparing it to its historical volatility, McDonalds is 1.52 times less risky than AutoZone. It trades about 0.02 of its potential returns per unit of risk. AutoZone is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  198,610  in AutoZone on September 9, 2022 and sell it today you would earn a total of  46,916  from holding AutoZone or generate 23.62% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

McDonalds  vs.  AutoZone

 Performance (%) 
       Timeline  
McDonalds 
McDonalds Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in McDonalds are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, McDonalds is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

McDonalds Price Channel

AutoZone 
AutoZone Performance
8 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in AutoZone are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, AutoZone may actually be approaching a critical reversion point that can send shares even higher in January 2023.

AutoZone Price Channel

McDonalds and AutoZone Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with McDonalds and AutoZone

The main advantage of trading using opposite McDonalds and AutoZone positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, AutoZone 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 AutoZone will offset losses from the drop in AutoZone's long position.
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The idea behind McDonalds and AutoZone 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.
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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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.

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