Correlation Between McDonalds and Life Time

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

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

Diversification Opportunities for McDonalds and Life Time

0.67

Correlation Coefficient

McDonalds  Life Time

Poor diversification

The 3 months correlation between McDonalds and Life is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Life Time Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Life Time Group 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 Life Time. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Life Time Group has no effect on the direction of McDonalds i.e., McDonalds and Life Time go up and down completely randomly.

Pair Corralation between McDonalds and Life Time

Considering the 90-day investment horizon McDonalds is expected to generate 6.21 times less return on investment than Life Time. But when comparing it to its historical volatility, McDonalds is 1.69 times less risky than Life Time. It trades about 0.07 of its potential returns per unit of risk. Life Time Group is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  2,228  in Life Time Group on September 1, 2024 and sell it today you would earn a total of  199.00  from holding Life Time Group or generate 8.93% return on investment over 90 days.

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

McDonalds  vs.  Life Time Group

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 recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Life Time Group

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Life Time Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Life Time 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 Life Time

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

The idea behind McDonalds and Life Time Group 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..