Correlation Between McDonalds Corp and Travelers Companies

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

Diversification Opportunities for McDonalds Corp and Travelers Companies

0.51
  Correlation Coefficient

Very weak diversification

The 3 months correlation between McDonalds and Travelers is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds Corp and The Travelers Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Travelers Companies 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 Travelers Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Travelers Companies has no effect on the direction of McDonalds Corp i.e., McDonalds Corp and Travelers Companies go up and down completely randomly.

Pair Corralation between McDonalds Corp and Travelers Companies

Considering the 90-day investment horizon McDonalds Corp is expected to under-perform the Travelers Companies. But the stock apears to be less risky and, when comparing its historical volatility, McDonalds Corp is 1.29 times less risky than Travelers Companies. The stock trades about -0.1 of its potential returns per unit of risk. The The Travelers Companies is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  16,720  in The Travelers Companies on July 5, 2022 and sell it today you would lose (1,013)  from holding The Travelers Companies or give up 6.06% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

McDonalds Corp  vs.  The Travelers Companies

 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 latest conflicting performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

McDonalds Price Channel

The Travelers Companies 
Travelers Performance
0 of 100
Over the last 90 days The Travelers Companies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Travelers Companies is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Travelers Price Channel

McDonalds Corp and Travelers Companies Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with McDonalds Corp and Travelers Companies

The main advantage of trading using opposite McDonalds Corp and Travelers Companies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds Corp position performs unexpectedly, Travelers Companies 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 Travelers Companies will offset losses from the drop in Travelers Companies' long position.
McDonalds Corp vs. Amazon Inc
The idea behind McDonalds Corp and The Travelers Companies 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.
Travelers Companies vs. Amazon Inc
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 Commodity Channel Index module to use Commodity Channel Index to analyze current equity momentum.

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