Correlation Between McDonalds and Nationwide

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

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

Diversification Opportunities for McDonalds and Nationwide

-0.34

Correlation Coefficient

McDonalds  Nationwide

Very good diversification

The 3 months correlation between McDonalds and Nationwide is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Nationwide in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nationwide 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 Nationwide. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nationwide has no effect on the direction of McDonalds i.e., McDonalds and Nationwide go up and down completely randomly.

Pair Corralation between McDonalds and Nationwide

Considering the 90-day investment horizon McDonalds is expected to generate 1.4 times less return on investment than Nationwide. In addition to that, McDonalds is 1.68 times more volatile than Nationwide. It trades about 0.04 of its total potential returns per unit of risk. Nationwide is currently generating about 0.08 per unit of volatility. If you would invest  1,939  in Nationwide on September 19, 2024 and sell it today you would earn a total of  138.00  from holding Nationwide or generate 7.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	28.48%
Values	Daily Returns

McDonalds  vs.  Nationwide

McDonalds

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in McDonalds are ranked lower than 1 (%) 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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

Nationwide

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nationwide has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward-looking indicators, Nationwide 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 Nationwide

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

The idea behind McDonalds and Nationwide 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.