Correlation Between McDonalds and Evolution

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

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

Diversification Opportunities for McDonalds and Evolution

-0.59

Correlation Coefficient

McDonalds  Evolution

Excellent diversification

The 3 months correlation between McDonalds and Evolution is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Evolution AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evolution AB 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 Evolution. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evolution AB has no effect on the direction of McDonalds i.e., McDonalds and Evolution go up and down completely randomly.

Pair Corralation between McDonalds and Evolution

Considering the 90-day investment horizon McDonalds is expected to under-perform the Evolution. But the stock apears to be less risky and, when comparing its historical volatility, McDonalds is 2.93 times less risky than Evolution. The stock trades about -0.06 of its potential returns per unit of risk. The Evolution AB is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  6,769  in Evolution AB on May 5, 2025 and sell it today you would earn a total of  2,106  from holding Evolution AB or generate 31.11% 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.  Evolution AB

McDonalds

Risk-Adjusted Performance

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 rather sound fundamental indicators, McDonalds is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Evolution AB

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Evolution AB are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Evolution reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with McDonalds and Evolution

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

The idea behind McDonalds and Evolution AB 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.