Correlation Between McDonalds Corp and Carvana Co

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

Diversification Opportunities for McDonalds Corp and Carvana Co

0.65
  Correlation Coefficient

Poor diversification

The 3 months correlation between McDonalds and Carvana is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds Corp and Carvana Co Cl in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carvana Co Cl and McDonalds 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 McDonalds Corp are associated (or correlated) with Carvana Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carvana Co Cl has no effect on the direction of McDonalds Corp i.e., McDonalds Corp and Carvana Co go up and down completely randomly.

Pair Corralation between McDonalds Corp and Carvana Co

Considering the 90-day investment horizon McDonalds Corp is expected to generate 0.14 times more return on investment than Carvana Co. However, McDonalds Corp is 6.93 times less risky than Carvana Co. It trades about -0.29 of its potential returns per unit of risk. Carvana Co Cl is currently generating about -0.2 per unit of risk. If you would invest  25,228  in McDonalds Corp on July 2, 2022 and sell it today you would lose (1,788)  from holding McDonalds Corp or give up 7.09% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

McDonalds Corp  vs.  Carvana Co Cl

 Performance (%) 
       Timeline  
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

Carvana Co Cl 
Carvana Performance
0 of 100
Over the last 90 days Carvana Co Cl has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Carvana Co is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Carvana Price Channel

McDonalds Corp and Carvana Co Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with McDonalds Corp and Carvana Co

The main advantage of trading using opposite McDonalds Corp and Carvana Co positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds Corp position performs unexpectedly, Carvana Co 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 Carvana Co will offset losses from the drop in Carvana Co's long position.
McDonalds Corp vs. Amazon Inc
The idea behind McDonalds Corp and Carvana Co Cl 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.
Carvana Co 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 Global Correlations module to find global opportunities by holding instruments from different markets.

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