Correlation Between McDonalds Corp and Coca Cola

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

Diversification Opportunities for McDonalds Corp and Coca Cola

0.53
  Correlation Coefficient

Very weak diversification

The 3 months correlation between McDonalds and Coca Cola is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds Corp and Coca-Cola in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca-Cola 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 Coca Cola. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coca-Cola has no effect on the direction of McDonalds Corp i.e., McDonalds Corp and Coca Cola go up and down completely randomly.

Pair Corralation between McDonalds Corp and Coca Cola

Considering the 90-day investment horizon McDonalds Corp is expected to generate 1.34 times less return on investment than Coca Cola. But when comparing it to its historical volatility, McDonalds Corp is 1.04 times less risky than Coca Cola. It trades about 0.05 of its potential returns per unit of risk. Coca-Cola is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  4,652  in Coca-Cola on May 13, 2022 and sell it today you would earn a total of  1,736  from holding Coca-Cola or generate 37.32% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

McDonalds Corp  vs.  Coca-Cola

 Performance (%) 
       Timeline  
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 unsteady fundamental indicators, McDonalds Corp may actually be approaching a critical reversion point that can send shares even higher in September 2022.

McDonalds Price Channel

Coca-Cola 
Coca Cola Performance
0 of 100
Over the last 90 days Coca-Cola has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Coca Cola is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Coca Cola Price Channel

McDonalds Corp and Coca Cola Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with McDonalds Corp and Coca Cola

The main advantage of trading using opposite McDonalds Corp and Coca Cola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds Corp position performs unexpectedly, Coca Cola 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 Coca Cola will offset losses from the drop in Coca Cola's long position.

McDonalds Corp

Pair trading matchups for McDonalds Corp

The idea behind McDonalds Corp and Coca-Cola 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.

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