Correlation Between Philip Morris and McDonalds Corp

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

Diversification Opportunities for Philip Morris and McDonalds Corp

-0.34
  Correlation Coefficient

Very good diversification

The 3 months correlation between Philip and McDonalds is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Philip Morris International and McDonalds Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds Corp and Philip Morris 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 Philip Morris International are associated (or correlated) with McDonalds Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McDonalds Corp has no effect on the direction of Philip Morris i.e., Philip Morris and McDonalds Corp go up and down completely randomly.

Pair Corralation between Philip Morris and McDonalds Corp

Allowing for the 90-day total investment horizon Philip Morris International is expected to generate 1.2 times more return on investment than McDonalds Corp. However, Philip Morris is 1.2 times more volatile than McDonalds Corp. It trades about 0.45 of its potential returns per unit of risk. McDonalds Corp is currently generating about 0.23 per unit of risk. If you would invest  8,951  in Philip Morris International on May 18, 2022 and sell it today you would earn a total of  1,149  from holding Philip Morris International or generate 12.84% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Philip Morris International  vs.  McDonalds Corp

 Performance (%) 
       Timeline  
Philip Morris Intern 
Philip Performance
0 of 100
Over the last 90 days Philip Morris International has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady primary indicators, Philip Morris is not utilizing all of its potentials. The current stock price chaos, may contribute to medium-term losses for the stakeholders.

Philip Price Channel

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

Philip Morris and McDonalds Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Philip Morris and McDonalds Corp

The main advantage of trading using opposite Philip Morris and McDonalds Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Philip Morris position performs unexpectedly, McDonalds Corp 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 McDonalds Corp will offset losses from the drop in McDonalds Corp's long position.
The idea behind Philip Morris International and McDonalds Corp 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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