Correlation Between McDonalds and South32

Can any of the company-specific risk be diversified away by investing in both McDonalds and South32 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 South32 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between McDonalds and South32 Limited, you can compare the effects of market volatilities on McDonalds and South32 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 South32. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and South32.

Diversification Opportunities for McDonalds and South32

-0.24

Correlation Coefficient

McDonalds  South32

Very good diversification

The 3 months correlation between McDonalds and South32 is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and South32 Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on South32 Limited 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 South32. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of South32 Limited has no effect on the direction of McDonalds i.e., McDonalds and South32 go up and down completely randomly.

Pair Corralation between McDonalds and South32

Considering the 90-day investment horizon McDonalds is expected to under-perform the South32. But the stock apears to be less risky and, when comparing its historical volatility, McDonalds is 4.06 times less risky than South32. The stock trades about -0.06 of its potential returns per unit of risk. The South32 Limited is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  160.00  in South32 Limited on May 6, 2025 and sell it today you would earn a total of  30.00  from holding South32 Limited or generate 18.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

McDonalds  vs.  South32 Limited

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.

South32 Limited

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in South32 Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, South32 reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with McDonalds and South32

The main advantage of trading using opposite McDonalds and South32 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, South32 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 South32 will offset losses from the drop in South32's long position.

The idea behind McDonalds and South32 Limited 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.