Correlation Between McDonalds and COMPASS GROUP

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

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

Diversification Opportunities for McDonalds and COMPASS GROUP

0.49

Correlation Coefficient

McDonalds  COMPASS GROUP

Very weak diversification

The 3 months correlation between McDonalds and COMPASS is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and COMPASS GROUP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COMPASS 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 COMPASS GROUP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COMPASS GROUP has no effect on the direction of McDonalds i.e., McDonalds and COMPASS GROUP go up and down completely randomly.

Pair Corralation between McDonalds and COMPASS GROUP

Assuming the 90 days horizon McDonalds is expected to generate 1.81 times less return on investment than COMPASS GROUP. But when comparing it to its historical volatility, McDonalds is 1.17 times less risky than COMPASS GROUP. It trades about 0.08 of its potential returns per unit of risk. COMPASS GROUP is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,760  in COMPASS GROUP on September 23, 2024 and sell it today you would earn a total of  280.00  from holding COMPASS GROUP or generate 10.14% return on investment over 90 days.

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

McDonalds  vs.  COMPASS GROUP

McDonalds

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in McDonalds are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, McDonalds is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

COMPASS GROUP

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in COMPASS GROUP are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, COMPASS GROUP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with McDonalds and COMPASS GROUP

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

The idea behind McDonalds and COMPASS 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.