Correlation Between McDonalds Corp and Norwegian Cruise

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

Diversification Opportunities for McDonalds Corp and Norwegian Cruise

-0.28
  Correlation Coefficient

Very good diversification

The 3 months correlation between McDonalds and Norwegian is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds Corp and Norwegian Cruise Ord in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norwegian Cruise Ord 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 Norwegian Cruise. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Norwegian Cruise Ord has no effect on the direction of McDonalds Corp i.e., McDonalds Corp and Norwegian Cruise go up and down completely randomly.

Pair Corralation between McDonalds Corp and Norwegian Cruise

Considering the 90-day investment horizon McDonalds Corp is expected to generate 4.19 times less return on investment than Norwegian Cruise. But when comparing it to its historical volatility, McDonalds Corp is 4.16 times less risky than Norwegian Cruise. It trades about 0.12 of its potential returns per unit of risk. Norwegian Cruise Ord is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,096  in Norwegian Cruise Ord on May 12, 2022 and sell it today you would earn a total of  114.00  from holding Norwegian Cruise Ord or generate 10.4% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy95.65%
ValuesDaily Returns

McDonalds Corp  vs.  Norwegian Cruise Ord

 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 weak fundamental indicators, McDonalds Corp may actually be approaching a critical reversion point that can send shares even higher in September 2022.

McDonalds Price Channel

Norwegian Cruise Ord 
Norwegian Performance
0 of 100
Over the last 90 days Norwegian Cruise Ord has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's essential indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Norwegian Price Channel

McDonalds Corp and Norwegian Cruise Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with McDonalds Corp and Norwegian Cruise

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

McDonalds Corp

Pair trading matchups for McDonalds Corp

The idea behind McDonalds Corp and Norwegian Cruise Ord 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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