Correlation Between Bloomin Brands and McDonalds Holdings

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

By analyzing existing cross correlation between Bloomin Brands and McDonalds Holdings, you can compare the effects of market volatilities on Bloomin Brands and McDonalds Holdings 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 Bloomin Brands with a short position of McDonalds Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bloomin Brands and McDonalds Holdings.

Diversification Opportunities for Bloomin Brands and McDonalds Holdings

0.71

Correlation Coefficient

Bloomin Brands  McDonalds Holdings

Poor diversification

The 3 months correlation between Bloomin and McDonalds is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Bloomin Brands and McDonalds Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds Holdings and Bloomin Brands 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 Bloomin Brands are associated (or correlated) with McDonalds Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McDonalds Holdings has no effect on the direction of Bloomin Brands i.e., Bloomin Brands and McDonalds Holdings go up and down completely randomly.

Pair Corralation between Bloomin Brands and McDonalds Holdings

Given the investment horizon of 90 days Bloomin Brands is expected to under-perform the McDonalds Holdings. In addition to that, Bloomin Brands is 2.29 times more volatile than McDonalds Holdings. It trades about -0.12 of its total potential returns per unit of risk. McDonalds Holdings is currently generating about -0.08 per unit of volatility. If you would invest  4,599  in McDonalds Holdings on September 13, 2024 and sell it today you would lose (699.00) from holding McDonalds Holdings or give up 15.2% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.32%
Values	Daily Returns

Bloomin Brands  vs.  McDonalds Holdings

Bloomin Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bloomin Brands has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

McDonalds Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days McDonalds Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Bloomin Brands and McDonalds Holdings

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

The idea behind Bloomin Brands and McDonalds Holdings 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.