Correlation Between McDonalds and M Large

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

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

Diversification Opportunities for McDonalds and M Large

-0.65

Correlation Coefficient

McDonalds  M Large

Excellent diversification

The 3 months correlation between McDonalds and MTCGX is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and M Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on M Large Cap 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 M Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of M Large Cap has no effect on the direction of McDonalds i.e., McDonalds and M Large go up and down completely randomly.

Pair Corralation between McDonalds and M Large

Considering the 90-day investment horizon McDonalds is expected to under-perform the M Large. But the stock apears to be less risky and, when comparing its historical volatility, McDonalds is 1.02 times less risky than M Large. The stock trades about -0.06 of its potential returns per unit of risk. The M Large Cap is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  3,144  in M Large Cap on May 6, 2025 and sell it today you would earn a total of  462.00  from holding M Large Cap or generate 14.69% return on investment over 90 days.

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

McDonalds  vs.  M Large Cap

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.

M Large Cap

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in M Large Cap are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, M Large showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with McDonalds and M Large

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

The idea behind McDonalds and M Large Cap 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.