Correlation Between McDonalds and Coca Cola

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

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

Diversification Opportunities for McDonalds and Coca Cola

0.5

Correlation Coefficient

McDonalds  Coca Cola

Very weak diversification

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

Pair Corralation between McDonalds and Coca Cola

Considering the 90-day investment horizon McDonalds is expected to generate 0.97 times more return on investment than Coca Cola. However, McDonalds is 1.03 times less risky than Coca Cola. It trades about -0.06 of its potential returns per unit of risk. The Coca Cola is currently generating about -0.07 per unit of risk. If you would invest  31,634  in McDonalds on May 7, 2025 and sell it today you would lose (1,211) from holding McDonalds or give up 3.83% of portfolio value over 90 days.

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

McDonalds  vs.  The Coca Cola

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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

Coca Cola

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Coca Cola has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Coca Cola is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with McDonalds and Coca Cola

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

The idea behind McDonalds and The Coca Cola 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.