Correlation Between McDonalds and Worlds

Can any of the company-specific risk be diversified away by investing in both McDonalds and Worlds 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 Worlds into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between McDonalds and Worlds Inc, you can compare the effects of market volatilities on McDonalds and Worlds 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 Worlds. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and Worlds.

Diversification Opportunities for McDonalds and Worlds

-0.5

Correlation Coefficient

McDonalds  Worlds

Very good diversification

The 3 months correlation between McDonalds and Worlds is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Worlds Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Worlds Inc 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 Worlds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Worlds Inc has no effect on the direction of McDonalds i.e., McDonalds and Worlds go up and down completely randomly.

Pair Corralation between McDonalds and Worlds

Considering the 90-day investment horizon McDonalds is expected to under-perform the Worlds. But the stock apears to be less risky and, when comparing its historical volatility, McDonalds is 22.84 times less risky than Worlds. The stock trades about -0.14 of its potential returns per unit of risk. The Worlds Inc is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  1.40  in Worlds Inc on January 30, 2024 and sell it today you would earn a total of  1.60  from holding Worlds Inc or generate 114.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

McDonalds  vs.  Worlds Inc

McDonalds

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days McDonalds has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile 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.

Worlds Inc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Worlds Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal fundamental indicators, Worlds exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with McDonalds and Worlds

The main advantage of trading using opposite McDonalds and Worlds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, Worlds 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 Worlds will offset losses from the drop in Worlds' long position.

The idea behind McDonalds and Worlds Inc 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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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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.