Correlation Between McDonalds and IShares Global

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

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

Diversification Opportunities for McDonalds and IShares Global

0.66

Correlation Coefficient

McDonalds  IShares Global

Poor diversification

The 3 months correlation between McDonalds and IShares is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and iShares Global Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Global Materials 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 IShares Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Global Materials has no effect on the direction of McDonalds i.e., McDonalds and IShares Global go up and down completely randomly.

Pair Corralation between McDonalds and IShares Global

Considering the 90-day investment horizon McDonalds is expected to generate 1.59 times more return on investment than IShares Global. However, McDonalds is 1.59 times more volatile than iShares Global Materials. It trades about -0.05 of its potential returns per unit of risk. iShares Global Materials is currently generating about -0.17 per unit of risk. If you would invest  30,194  in McDonalds on September 4, 2024 and sell it today you would lose (950.00) from holding McDonalds or give up 3.15% of portfolio value over 90 days.

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

McDonalds  vs.  iShares Global Materials

McDonalds

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in McDonalds are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

iShares Global Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Global Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, IShares Global is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with McDonalds and IShares Global

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

The idea behind McDonalds and iShares Global Materials 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.