Correlation Between McDonalds and Marstons PLC

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

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

Diversification Opportunities for McDonalds and Marstons PLC

0.03

Correlation Coefficient

McDonalds  Marstons PLC

Significant diversification

The 3 months correlation between McDonalds and Marstons is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Marstons PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Marstons PLC 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 Marstons PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Marstons PLC has no effect on the direction of McDonalds i.e., McDonalds and Marstons PLC go up and down completely randomly.

Pair Corralation between McDonalds and Marstons PLC

Considering the 90-day investment horizon McDonalds is expected to under-perform the Marstons PLC. But the stock apears to be less risky and, when comparing its historical volatility, McDonalds is 1.33 times less risky than Marstons PLC. The stock trades about -0.04 of its potential returns per unit of risk. The Marstons PLC is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  56.00  in Marstons PLC on September 29, 2024 and sell it today you would lose (1.00) from holding Marstons PLC or give up 1.79% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.92%
Values	Daily Returns

McDonalds  vs.  Marstons PLC

McDonalds

Risk-Adjusted Performance

0 of 100

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.

Marstons PLC

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with McDonalds and Marstons PLC

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

The idea behind McDonalds and Marstons PLC 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.