Correlation Between Ford and McDonalds

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

Diversification Opportunities for Ford and McDonalds

0.42
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Ford and McDonalds is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds and Ford 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 Ford Motor are associated (or correlated) with McDonalds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McDonalds has no effect on the direction of Ford i.e., Ford and McDonalds go up and down completely randomly.

Pair Corralation between Ford and McDonalds

Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.68 times more return on investment than McDonalds. However, Ford is 1.68 times more volatile than McDonalds. It trades about 0.05 of its potential returns per unit of risk. McDonalds is currently generating about -0.1 per unit of risk. If you would invest  1,077  in Ford Motor on August 13, 2024 and sell it today you would earn a total of  20.00  from holding Ford Motor or generate 1.86% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Ford Motor  vs.  McDonalds

 Performance 
       Timeline  
Ford Motor 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, Ford may actually be approaching a critical reversion point that can send shares even higher in December 2024.
McDonalds 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in McDonalds are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile fundamental indicators, McDonalds may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Ford and McDonalds Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ford and McDonalds

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