Correlation Between McDonalds Corp and Mercadolibre

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

Diversification Opportunities for McDonalds Corp and Mercadolibre

0.55
  Correlation Coefficient

Very weak diversification

The 3 months correlation between McDonalds and Mercadolibre is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds Corp and Mercadolibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercadolibre 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 Mercadolibre. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mercadolibre has no effect on the direction of McDonalds Corp i.e., McDonalds Corp and Mercadolibre go up and down completely randomly.

Pair Corralation between McDonalds Corp and Mercadolibre

Considering the 90-day investment horizon McDonalds Corp is expected to generate 0.28 times more return on investment than Mercadolibre. However, McDonalds Corp is 3.63 times less risky than Mercadolibre. It trades about 0.05 of its potential returns per unit of risk. Mercadolibre is currently generating about 0.01 per unit of risk. If you would invest  20,426  in McDonalds Corp on May 18, 2022 and sell it today you would earn a total of  6,118  from holding McDonalds Corp or generate 29.95% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

McDonalds Corp  vs.  Mercadolibre

 Performance (%) 
       Timeline  
McDonalds Corp 
McDonalds Performance
15 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in McDonalds Corp are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent fundamental indicators, McDonalds Corp exhibited solid returns over the last few months and may actually be approaching a breakup point.

McDonalds Price Channel

Mercadolibre 
Mercadolibre Performance
10 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Mercadolibre are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting essential indicators, Mercadolibre reported solid returns over the last few months and may actually be approaching a breakup point.

Mercadolibre Price Channel

McDonalds Corp and Mercadolibre Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with McDonalds Corp and Mercadolibre

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