Correlation Between McDonalds Corp and Capital Income

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

Diversification Opportunities for McDonalds Corp and Capital Income

0.68
  Correlation Coefficient

Poor diversification

The 3 months correlation between McDonalds and Capital is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds Corp and Capital Income Builder in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Income Builder 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 Capital Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Income Builder has no effect on the direction of McDonalds Corp i.e., McDonalds Corp and Capital Income go up and down completely randomly.

Pair Corralation between McDonalds Corp and Capital Income

Considering the 90-day investment horizon McDonalds Corp is expected to generate 1.61 times more return on investment than Capital Income. However, McDonalds Corp is 1.61 times more volatile than Capital Income Builder. It trades about 0.03 of its potential returns per unit of risk. Capital Income Builder is currently generating about 0.02 per unit of risk. If you would invest  21,610  in McDonalds Corp on June 27, 2022 and sell it today you would earn a total of  2,985  from holding McDonalds Corp or generate 13.81% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy99.8%
ValuesDaily Returns

McDonalds Corp  vs.  Capital Income Builder

 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 rather sound fundamental indicators, McDonalds Corp is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

McDonalds Price Channel

Capital Income Builder 
Capital Performance
0 of 100
Over the last 90 days Capital Income Builder has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Capital Price Channel

McDonalds Corp and Capital Income Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with McDonalds Corp and Capital Income

The main advantage of trading using opposite McDonalds Corp and Capital Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds Corp position performs unexpectedly, Capital Income 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 Capital Income will offset losses from the drop in Capital Income's long position.
McDonalds Corp vs. Industrias Bachoco SA
The idea behind McDonalds Corp and Capital Income Builder 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.
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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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