Correlation Between McDonalds Corp and Chevron Corp

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

Diversification Opportunities for McDonalds Corp and Chevron Corp

-0.39
  Correlation Coefficient

Very good diversification

The 3 months correlation between McDonalds and Chevron is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds Corp and Chevron Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chevron Corp 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 Chevron Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chevron Corp has no effect on the direction of McDonalds Corp i.e., McDonalds Corp and Chevron Corp go up and down completely randomly.

Pair Corralation between McDonalds Corp and Chevron Corp

Considering the 90-day investment horizon McDonalds Corp is expected to generate 3.28 times less return on investment than Chevron Corp. But when comparing it to its historical volatility, McDonalds Corp is 2.54 times less risky than Chevron Corp. It trades about 0.11 of its potential returns per unit of risk. Chevron Corp is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  14,277  in Chevron Corp on May 9, 2022 and sell it today you would earn a total of  1,087  from holding Chevron Corp or generate 7.61% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

McDonalds Corp  vs.  Chevron Corp

 Performance (%) 
       Timeline  
McDonalds Corp 
McDonalds Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in McDonalds Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, McDonalds Corp is not utilizing all of its potentials. The new stock price tumult, may contribute to shorter-term losses for the shareholders.

McDonalds Price Channel

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 latest stock price disturbance, may contribute to short-term losses for the investors.

Chevron Price Channel

McDonalds Corp and Chevron Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with McDonalds Corp and Chevron Corp

The main advantage of trading using opposite McDonalds Corp and Chevron Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds Corp position performs unexpectedly, Chevron 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 Chevron Corp will offset losses from the drop in Chevron Corp's long position.
The idea behind McDonalds Corp and Chevron 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.

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