Correlation Between Sht-Term Corp and McDonalds Corp

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

Diversification Opportunities for Sht-Term Corp and McDonalds Corp

0.48
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Sht-Term and McDonalds is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Sht-Term Corp Bond and McDonalds Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds Corp and Sht-Term 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 Sht-Term Corp Bond 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 Sht-Term Corp i.e., Sht-Term Corp and McDonalds Corp go up and down completely randomly.

Pair Corralation between Sht-Term Corp and McDonalds Corp

Given the investment horizon of 90 days Sht-Term Corp Bond is expected to under-perform the McDonalds Corp. But the etf apears to be less risky and, when comparing its historical volatility, Sht-Term Corp Bond is 7.12 times less risky than McDonalds Corp. The etf trades about -0.06 of its potential returns per unit of risk. The McDonalds Corp is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  20,020  in McDonalds Corp on May 11, 2022 and sell it today you would earn a total of  5,886  from holding McDonalds Corp or generate 29.4% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Sht-Term Corp Bond  vs.  McDonalds Corp

 Performance (%) 
       Timeline  
Sht-Term Corp Bond 
Sht-Term Performance
0 of 100
Over the last 90 days Sht-Term Corp Bond has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Sht-Term Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Sht-Term Price Channel

McDonalds Corp 
McDonalds Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in McDonalds Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. 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

Sht-Term Corp and McDonalds Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Sht-Term Corp and McDonalds Corp

The main advantage of trading using opposite Sht-Term Corp and McDonalds Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sht-Term Corp 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.

Sht-Term Corp Bond

Pair trading matchups for Sht-Term Corp

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The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Sht-Term Corp as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Sht-Term Corp's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Sht-Term Corp's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Sht-Term Corp Bond.
The idea behind Sht-Term Corp Bond 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.

McDonalds Corp

Pair trading matchups for McDonalds Corp

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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.

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