Correlation Between McDonalds and Sabio Holdings

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

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

Diversification Opportunities for McDonalds and Sabio Holdings

0.17

Correlation Coefficient

McDonalds  Sabio Holdings

Average diversification

The 3 months correlation between McDonalds and Sabio is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Sabio Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sabio Holdings 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 Sabio Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sabio Holdings has no effect on the direction of McDonalds i.e., McDonalds and Sabio Holdings go up and down completely randomly.

Pair Corralation between McDonalds and Sabio Holdings

Considering the 90-day investment horizon McDonalds is expected to generate 5.87 times less return on investment than Sabio Holdings. But when comparing it to its historical volatility, McDonalds is 5.43 times less risky than Sabio Holdings. It trades about 0.05 of its potential returns per unit of risk. Sabio Holdings is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  31.00  in Sabio Holdings on September 12, 2024 and sell it today you would earn a total of  4.00  from holding Sabio Holdings or generate 12.9% return on investment over 90 days.

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

McDonalds  vs.  Sabio Holdings

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

Sabio Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sabio Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sabio Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with McDonalds and Sabio Holdings

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

The idea behind McDonalds and Sabio 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.