Correlation Between McDonalds and Carrefour

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

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

Diversification Opportunities for McDonalds and Carrefour

0.64

Correlation Coefficient

McDonalds  Carrefour

Poor diversification

The 3 months correlation between McDonalds and Carrefour is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Carrefour SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carrefour SA 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 Carrefour. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carrefour SA has no effect on the direction of McDonalds i.e., McDonalds and Carrefour go up and down completely randomly.

Pair Corralation between McDonalds and Carrefour

Considering the 90-day investment horizon McDonalds is expected to generate 0.52 times more return on investment than Carrefour. However, McDonalds is 1.93 times less risky than Carrefour. It trades about 0.05 of its potential returns per unit of risk. Carrefour SA is currently generating about 0.01 per unit of risk. If you would invest  28,552  in McDonalds on August 31, 2024 and sell it today you would earn a total of  956.00  from holding McDonalds or generate 3.35% return on investment over 90 days.

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

McDonalds  vs.  Carrefour SA

McDonalds

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in McDonalds are ranked lower than 4 (%) 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 new stock price tumult, may contribute to shorter-term losses for the shareholders.

Carrefour SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Carrefour SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Carrefour is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with McDonalds and Carrefour

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

The idea behind McDonalds and Carrefour SA 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.