Correlation Between McDonalds and Biglari Holdings
Can any of the company-specific risk be diversified away by investing in both McDonalds and Biglari Holdings 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 and Biglari Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between McDonalds and Biglari Holdings, you can compare the effects of market volatilities on McDonalds and Biglari Holdings 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 with a short position of Biglari Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and Biglari Holdings.
Diversification Opportunities for McDonalds and Biglari Holdings
-0.68 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between McDonalds and Biglari is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Biglari Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biglari Holdings and McDonalds 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 are associated (or correlated) with Biglari Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biglari Holdings has no effect on the direction of McDonalds i.e., McDonalds and Biglari Holdings go up and down completely randomly.
Pair Corralation between McDonalds and Biglari Holdings
Considering the 90-day investment horizon McDonalds is expected to under-perform the Biglari Holdings. But the stock apears to be less risky and, when comparing its historical volatility, McDonalds is 1.75 times less risky than Biglari Holdings. The stock trades about -0.03 of its potential returns per unit of risk. The Biglari Holdings is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 18,739 in Biglari Holdings on January 26, 2024 and sell it today you would earn a total of 1,280 from holding Biglari Holdings or generate 6.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
McDonalds vs. Biglari Holdings
Performance |
| Timeline |
| McDonalds |
| Biglari Holdings |
McDonalds and Biglari Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with McDonalds and Biglari Holdings
The main advantage of trading using opposite McDonalds and Biglari Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, Biglari Holdings 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 Biglari Holdings will offset losses from the drop in Biglari Holdings' long position.| McDonalds vs. Chipotle Mexican Grill | McDonalds vs. Dutch Bros | McDonalds vs. Dominos Pizza | McDonalds vs. Yum Brands |
| Biglari Holdings vs. Cannae Holdings | Biglari Holdings vs. BJs Restaurants | Biglari Holdings vs. Ark Restaurants Corp | Biglari Holdings vs. Noble Romans |
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 the Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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